How to calculate SIP returns, with a worked example

Steps

1. Decide the monthly amount, the yearly return you want to test and the number of years. Here: ₹5,000, 12% and 10 years.
2. Turn the yearly return into a monthly one: 12 ÷ 12 ÷ 100 = 0.01.
3. Turn the years into months: 10 × 12 = 120.
4. Put the numbers into the formula, or enter them in the SIP calculator, to get ₹11,61,695.
5. Subtract what you paid in, ₹6,00,000, to see the gain: ₹5,61,695.

Time does most of the work

Keep ₹5,000 a month at 12% and change only the years. After 5 years it is ₹4,12,432 on ₹3,00,000 invested. After 10 years it is ₹11,61,695 on ₹6,00,000. After 15 years it is ₹25,22,880 on ₹9,00,000. After 20 years it is ₹49,95,740 on ₹12,00,000.

Doubling the time from 10 to 20 years more than quadruples the result. Most of the growth in the later years comes from returns earning returns, which is why starting early matters more than the size of the monthly amount.

The return you assume matters too

For 10 years at ₹5,000 a month, an 8% return gives ₹9,20,828, a 10% return gives ₹10,32,760 and a 12% return gives ₹11,61,695. Double the monthly amount to ₹10,000 at 12% and the result doubles to ₹23,23,391. Test a range of returns rather than trusting one number.

What the calculation leaves out

The calculator assumes each instalment goes in at the start of the month and a steady return every month. Real investments go up and down, so the actual path will be bumpier, and fund charges and tax reduce what you keep. Use the result to compare plans, not as a promise.