How a SIP grows wealth
A Systematic Investment Plan invests a fixed amount in a mutual fund every month. Each instalment buys units at that month's price, and the whole pool compounds as the fund's value grows. The power of a SIP comes from two forces working together: compounding over long horizons and rupee-cost averaging, which smooths out market ups and downs.
Because you invest the same amount regardless of price, you automatically buy more when markets dip — turning volatility into an advantage rather than a worry.
The SIP future-value formula
FV = M × [ (1 + i)ⁿ − 1 ] ÷ i × (1 + i)
where:
- M = monthly investment
- i = expected annual return ÷ 12 ÷ 100 (monthly rate)
- n = number of months (years × 12)
The amount invested is simply M × n, and the estimated returns are FV − amount invested.
Worked example
Invest ₹10,000 a month for 15 years at an expected 12% per annum.
- Monthly rate i = 12 ÷ 1200 = 0.01; n = 180 months
- (1.01)¹⁸⁰ ≈ 5.996
- FV ≈ 10,000 × (5.996 − 1) ÷ 0.01 × 1.01 ≈ ₹50.46 lakh
- Amount invested = 10,000 × 180 = ₹18,00,000
- Estimated returns ≈ ₹32.46 lakh — your money roughly 2.8× over 15 years
The breakdown above makes the key insight vivid: more than half the final value is growth, not your own contributions. That gap widens dramatically the longer you stay invested, which is why starting early matters more than investing large amounts later.
Getting SIPs right
- Stay invested through downturns. Stopping a SIP when markets fall defeats the rupee-cost-averaging benefit — that is exactly when your instalments buy the most units.
- Step up your SIP as income rises; even a 10% annual increase compounds into a far larger corpus.
- Match the horizon to the goal. Equity SIPs suit goals 7+ years away; for shorter goals, consider lower-volatility funds.
Compare a one-time investment using the lumpsum calculator, and remember the assumed return is an estimate, not a guarantee.