How SIP Returns Are Calculated: Formula and Worked Examples

A SIP (systematic investment plan) looks simple: you invest a fixed amount every month. But how does a monthly ₹10,000 turn into a larger number after ten years? This guide shows the formula, a worked example you can follow with a calculator, and the reasons your actual mutual fund returns will differ from any projection.

This article is educational and not investment advice. Mutual fund investments are subject to market risks, and the returns used here are assumptions, not promises.

The SIP formula

The standard formula for the maturity value of a monthly SIP is:

FV = P × (((1 + i)ⁿ − 1) ÷ i) × (1 + i)

• FV is the future value, or what your SIP could be worth at the end.
• P is the amount you invest each month.
• i is the monthly rate of return, taken here as the expected annual return divided by 12.
• n is the total number of monthly instalments (years × 12).

The last part, × (1 + i), assumes each instalment is invested at the start of the month. Our SIP calculator uses this same formula.

A worked example

Suppose you invest ₹10,000 a month for 10 years and assume a 12% a year return.

• P = 10,000
• i = 12% ÷ 12 = 1% = 0.01
• n = 10 × 12 = 120
• FV = 10,000 × (((1.01)¹²⁰ − 1) ÷ 0.01) × 1.01 ≈ ₹23,23,391

You would have invested ₹12,00,000 of your own money (₹10,000 × 120). The gain from compounding in this example is about ₹11,23,391.

How it builds, month by month

To see what the formula is doing, take a 3-month example at 1% a month. After month 1 you hold ₹10,000 × 1.01 = ₹10,100. At the start of month 2 you add another ₹10,000, making ₹20,100, which grows to ₹20,301. At the start of month 3 you add ₹10,000, making ₹30,301, which grows to ₹30,604. The formula does this for every month at once.

Time matters more than most people expect

At the same 12% assumption and ₹10,000 a month:

Doubling the time from 10 to 20 years does more than double the result, because the earlier gains also earn returns. That is why starting early matters.

Sensitivity: what a different return does

Nobody knows the future return. Here is the same ₹10,000 monthly SIP over 10 years at different assumed returns:

Use a conservative assumption when you plan. If the real return is lower, you will not be caught short.

What if you increase the SIP every year?

If you raise your SIP by 10% each year, starting at ₹10,000 a month, the same 12% assumption gives about ₹33,74,326 after 10 years, compared with ₹23,23,391 for a flat SIP. A yearly step-up is one of the simplest ways to grow the final amount.

Why your real SIP returns will differ

• Returns are not constant. The formula assumes the same return every month. Real funds go up and down, and your result depends on when you invest.
• Costs. The fund’s expense ratio is already reflected in its NAV, so your actual return is lower than a gross figure.
• Taxes and exit loads. The projection is before tax and exit load.
• How the monthly rate is set. Dividing the annual rate by 12 is the common method. Using the equivalent monthly rate, (1 + 12%)^1/12 − 1, gives about ₹22,40,359 for the same example. Both are projections.

XIRR vs CAGR: how to measure your actual SIP return

Once you have been investing, you want to measure what you actually earned. CAGR (compound annual growth rate) works well for a single lump sum: (end value ÷ start value)^1/years − 1. For a SIP, money goes in on many different dates, so use XIRR, which takes each instalment’s date into account. In Excel or Google Sheets, you can use =XIRR(values, dates), entering your instalments as negative numbers and the current value as a positive number on today’s date. Most mutual fund apps show XIRR for your SIPs.

Frequently asked questions

How is a SIP calculated every month?

Each instalment is added, then the balance grows by the monthly rate. The formula above does the repeated adding and growing in one step.

Is 12% a realistic SIP return?

It is a common assumption for long-term equity funds, but it is not guaranteed, and some periods deliver far less. Plan with a lower figure and treat anything above it as a bonus.

Does a longer SIP always give a higher value?

A longer period gives compounding more time, but only if the funds perform. Markets can fall, and returns over short periods can be negative.

Next, try the SIP calculator with your own numbers, and read our comparison of daily, weekly and monthly SIPs and our beginner’s guide to investing.