SIP returns explained: how a monthly investment grows

By Zulu Calculator · Updated 19 October 2026 · Money

A SIP (systematic investment plan) puts the same amount into a fund at regular intervals. Each instalment earns a return, and those returns then earn returns of their own. The usual way to estimate what it grows to is value = P × ((1 + i)ⁿ − 1) ÷ i × (1 + i), where P is the monthly amount, i is the monthly return and n is the number of months. At an example rate of 12% a year, 5,000 a month for 10 years grows to about 1,161,695. You put in 600,000; the other 561,695 is growth.

That 12% is an example rate used to show the maths, not an expected return. Market returns are not guaranteed: they change from year to year and can be negative. To try your own numbers, use the SIP calculator.

How is SIP maturity value calculated?

The calculator treats your yearly return as a steady monthly return of yearly return ÷ 12. It assumes you invest at the start of each month, which is how most fund houses calculate it, so every instalment gets a full month of growth before the next one goes in.

i = yearly return ÷ 12 ÷ 100
SIP value = P × ((1 + i)ⁿ − 1) ÷ i × (1 + i)
lump sum value = L × (1 + i)ⁿ
gains = value − total invested

The first instalment is invested for all n months, the second for n − 1 months, and so on down to the last, which is invested for one month. The formula simply adds all of those up in one go.

Weekly, quarterly and yearly SIPs use the same monthly return compounded over that period. At 12% a year, one quarter is (1 + 1%)³ − 1 = 3.03%.

Why does the gap between invested and value keep widening?

This is compounding. In the early years most of the value is your own money. Later, the growth on past growth starts to do the heavy lifting. With 5,000 a month at an example 12% a year:

• After 1 year you have invested 60,000 and it is worth 64,047. Growth is 4,047.
• After 5 years you have invested 300,000 and it is worth 412,432. Growth is 112,432.
• After 10 years you have invested 600,000 and it is worth 1,161,695. Growth is 561,695.

Doubling the time from 5 to 10 years doubles what you put in, but nearly triples the value.

What a monthly SIP could grow to at an example 12% a year

Instalments at the start of each month, 12% a year as an example rate (1% a month), no tax or fees. Real results will be different.

Worked examples

Example 1: 5,000 a month for 10 years

At an example 12% a year, i = 12 ÷ 12 ÷ 100 = 0.01 and n = 10 × 12 = 120 months.

• Growth over 120 months: (1.01)¹²⁰ = 3.300387
• Value: 5,000 × (3.300387 − 1) ÷ 0.01 × 1.01 = 5,000 × 230.0387 × 1.01 = 1,161,695
• You invest: 5,000 × 120 = 600,000
• Growth: 1,161,695 − 600,000 = 561,695

If the return were an example 8% a year instead, the same SIP would reach 920,828. At an example 16% it would reach 1,482,358. A few points of return make a big difference over time, which is why no single figure should be treated as a forecast.

Example 2: a step-up SIP, rising 10% a year

You start at 5,000 a month and raise it by 10% at the start of each new year, for 10 years, at an example 12% a year. Your monthly amount goes 5,000, 5,500, 6,050, 6,655 and so on, reaching 11,790 a month in year 10.

You invest 956,245 in total and end with about 1,687,163, so growth is 730,918. That is 525,468 more than the flat SIP, from 356,245 more money in. Each year's 12 payments act like a small SIP of their own: at 1% a month, one year of payments is worth 12.8093 times the monthly amount at the end of that year, and then grows by 1.1268 times for each year left. A step-up can also be a fixed amount: adding 500 a month each year takes the same plan to 1,572,678. The step-up SIP calculator shows this year by year.

Example 3: 20 years, inflation, and starting a year late

You invest 5,000 a month for 20 years at an example 12% a year. n = 240 months.

• Growth over 240 months: (1.01)²⁴⁰ = 10.892554
• Value: 5,000 × 9.892554 ÷ 0.01 × 1.01 = 4,995,740, from 1,200,000 invested
• In today's money, with an example inflation rate of 6% a year: 4,995,740 ÷ 1.06²⁰ = 4,995,740 ÷ 3.2071355 = 1,557,695
• Start one year later (19 years, same end date): the value is 4,376,627, which is 619,113 less

Inflation does not change the number on your statement, but it shrinks what that number buys. Here the money still beats inflation, but by much less than the headline figure suggests. The one-year delay costs more than the 60,000 of instalments you skip, because those are the instalments that would have grown the longest.

Is a SIP or a lump sum better?

If you already have the money, investing it all at once spends more time in the market. With a smooth, steady return, that always ends higher. The lumpsum calculator shows this with 100,000 over 10 years at an example 12% a year:

• All now: 100,000 × 1.12¹⁰ = 310,585
• SIP over 12 months of 8,333 a month, the rest waiting as cash: 295,021, which is 15,564 less
• STP over 12 months, the waiting money in a debt fund at an example 7%: 300,991

Real markets do not rise smoothly. If prices fall soon after you invest, a SIP buys more units at lower prices and can beat a lump sum. Nobody can reliably time this. A SIP is the natural choice when the money comes from your monthly income; spreading a lump sum over months is mainly a way to reduce regret on a large amount, not a way to earn more.

One small note if you compare the two calculators side by side: the SIP calculator grows money by the yearly return ÷ 12 each month, while the lumpsum calculator compounds yearly by default, as the Groww, ClearTax and ET Money lumpsum calculators do. At 12%, a monthly 1% works out to about 12.68% a year, so the two give slightly different answers for the same money.

How does tax affect SIP returns in India?

This part applies to equity mutual funds in India only. The calculator uses the rates from the Finance (No. 2) Act 2024, unchanged for FY 2026-27 (checked 9 October 2026):

Each SIP instalment buys its own units, so when you sell everything, the last 12 months of instalments are short-term. For ₹5,000 a month for 10 years at an example 12%, long-term gains are ₹5,57,649 and short-term gains ₹4,047. The tax is (5,57,649 − 1,25,000) × 12.5% + 4,047 × 20% = 54,081 + 809 = ₹54,890, before 4% cess and any surcharge. This assumes you sell everything in one financial year and have no other equity gains that year. For the official rules, see the Income Tax Department's Finance Acts page.

Common mistakes

• Treating the example rate as a promise. A calculator's 12% is an assumption you type in. Your actual return could be higher, lower or negative in any year.
• Calling the whole value "returns". In Example 1, 600,000 of the 1,161,695 is your own money.
• Ignoring inflation on long goals. Twenty years of 6% inflation cuts what money buys to less than a third.
• Waiting for a better time to start. Starting a year later costs far more than the year of instalments you skip.
• Forgetting tax. In India, gains over the ₹1.25 lakh yearly exemption on equity funds are taxed, and the last year's instalments are short-term.
• Comparing figures from different conventions. Monthly versus yearly compounding, or start versus end of month, changes the answer slightly.

What to do with your SIP plan

1. Try a range of example rates, not just one. If your plan only works at the highest rate, it is a fragile plan.
2. Work backwards from a goal. At an example 12% a year, each 1 a month for 15 years grows to 504.576, so 10,000,000 needs 10,000,000 ÷ 504.576 = about 19,819 a month. The SIP calculator's "SIP needed for a goal" mode does this, and can add inflation to a goal set in today's money.
3. Add a step-up if your income tends to rise. Small yearly increases add up.
4. Plan the other end. When you start drawing money out, the SWP calculator shows how long it lasts. For example, 1,000,000 at an example 8% a year, taking 8,000 a month, still leaves 746,315 after 10 years.

Quick summary

• SIP value = P × ((1 + i)ⁿ − 1) ÷ i × (1 + i), with i = yearly return ÷ 12 ÷ 100.
• Instalments are assumed to go in at the start of each month.
• Time matters most: the last years of a long SIP add the most growth.
• A step-up SIP raises the amount each year and can lift the end value a lot.
• With a steady return a lump sum ends higher; real markets make the choice less clear-cut.
• Every rate here is an example. Market returns are not guaranteed.

Try your own numbers with the SIP calculator, compare a one-time investment with the lumpsum calculator, or see what a regular withdrawal does with the SWP calculator. To see what inflation does to any amount, use the inflation calculator.

For how compounding itself works, see compound interest explained.

Formulas and India equity fund tax rates (Finance (No. 2) Act 2024, unchanged for FY 2026-27) checked against the SIP, lumpsum and SWP calculators' own maths (tax rates checked 9 October 2026). General information only, not financial or tax advice.

This guide explains the rules in plain English for planning. It is not legal, financial or flight-operations advice; check your contract, the official source linked above, your employer or your operator.