How SIP Calculator Works: Formula & Examples
What’s actually happening when you tap “Calculate” on a SIP calculator? The formula behind the future value, with worked examples Indian investors can replicate.
The formula every SIP calculator uses
A monthly SIP is mathematically the same thing as a recurring annuity. Every SIP calculator in India — Groww, Zerodha, ET Money, ours — uses one formula:
FV = P × ((1 + r)n − 1) ÷ r × (1 + r)
Where P is your monthly contribution, r is the monthly interest rate (annual return divided by 12 and 100), and n is the total number of months. The trailing (1 + r) accounts for SIPs invested at the start of each month rather than the end. If you also have a lumpsum starting amount, add Lumpsum × (1 + r)n to the result.
Worked example: ₹5,000/month for 20 years at 12%
Let's break it down step by step for a typical Indian investor:
- Monthly investment (P): ₹5,000
- Annual return (assumed): 12% (close to the long-term Nifty 50 average)
- Monthly rate (r): 12 ÷ 12 ÷ 100 = 0.01
- Total months (n): 20 × 12 = 240
Plugging in: FV = 5000 × ((1.01)240 − 1) ÷ 0.01 × 1.01 ≈ ₹49.96 lakh. You contributed only ₹12 lakh out of pocket. The remaining ₹37.96 lakh is pure compounding — earned by leaving your money alone for 20 years.
The three inputs that drive the answer
Time matters most. Doubling the tenure from 10 years to 20 doesn't double the corpus — it more than quadruples it, because compounding accelerates with time.
Return matters second. The difference between 10% and 12% over 20 years on a ₹5,000 SIP is roughly ₹12 lakh — meaningful but not life-changing. The difference between starting at 25 vs 35 with the same return is closer to ₹85 lakh.
Amount matters least. Starting small and stepping up by 10% each year usually beats starting larger but never increasing the contribution. Most platforms now offer "step-up SIP" plans that automate this.
What the calculator can’t tell you
A SIP calculator assumes a constant return. Real markets don't behave that way. Indian equity SIPs have historically returned 11-14% over rolling 15-year windows, but year-by-year results swing from −20% to +35%. That's why the same ₹5,000 SIP over 20 years could finish anywhere between ₹40 lakh and ₹65 lakh in real life. Use the calculator to set expectations, not to predict the future.
Frequently asked questions
What return rate should I assume?
For long-term equity SIPs in India, 12% is the most-used assumption. For hybrid funds, 9–10%. For debt mutual funds, 7–7.5%. Always test a "pessimistic" scenario at 2 percentage points lower than your headline assumption.
Does the calculator account for taxes?
No. SIP calculators show pre-tax future values. For Indian equity mutual funds held over a year, the tax is 12.5% on long-term capital gains above ₹1.25 lakh per financial year. Subtract that from your final number for a realistic in-hand figure.
What if I miss a SIP instalment?
Missing one instalment doesn’t cancel your SIP — your bank simply doesn't deduct it that month. You can resume next month. The calculator output is slightly optimistic versus reality if you skip months.
Related reading
- What is SIP? Complete Beginner Guide
- Best SIP Strategy for Beginners
- How Much SIP for ₹1 Crore?
- SIP vs FD: Which is Better in India?
Try the matching calculator
Plug your own monthly amount and tenure into our free SIP Calculator. Comparing options? Try the Loan EMI Calculator to see how clearing debt early lets you start a bigger SIP.