How SIP returns are calculated
A SIP (Systematic Investment Plan) invests a fixed amount every month. The future value assumes each instalment compounds monthly at your expected annual return:
FV = P × [((1+i)ⁿ − 1) / i] × (1+i)
where P is the monthly amount, i the monthly return (annual ÷ 12) and n total months. Instalments are assumed at the start of each month.
What return should you assume?
- Equity mutual funds in India have historically delivered ~10–14% p.a. over 10+ year periods — but past returns don't guarantee future ones.
- Debt funds: ~6–8%. Hybrid: ~8–11%. Use conservative numbers for planning.
- Step-up SIPs (increasing your SIP 10% yearly) can add 30–50% to your final corpus versus a flat SIP.
FAQs
Is SIP better than a lump sum?
SIPs average your purchase cost across market ups and downs (rupee-cost averaging) and suit salaried cash flow. A lump sum can outperform if invested at a market low — which is hard to time.
Are SIP returns taxed?
Yes. Equity fund gains held over 12 months are long-term capital gains; shorter holdings are short-term. Each SIP instalment has its own holding period. Tax rules change — verify current rates before redeeming.
Can I stop or pause a SIP anytime?
Yes, SIPs are flexible — you can pause, stop or change the amount without penalty (exit load may apply on redemption within the fund's stipulated period).