What is a SIP and how does it work?

A Systematic Investment Plan (SIP) auto-invests a fixed amount into a mutual fund every month. Each SIP buys units at the prevailing NAV — so when prices fall you buy more units, when they rise you buy fewer. This 'rupee-cost averaging' smooths volatility. Most equity SIPs start as low as ₹500 / £25 / $25 per month.

How is the SIP future value calculated?

For a constant monthly SIP of P at monthly rate r over n months, future value FV = P × [((1+r)^n − 1) / r] × (1+r). For step-up SIP, the formula is applied year-by-year with the contribution increased annually. Lump sum amounts compound separately at FV = L × (1+r)^n.

What return rate should I assume?

Indian large-cap equity mutual funds have averaged 11–13% over 15-year periods. Global equity index funds (S&P 500, MSCI World) average 8–10% in USD/GBP terms. For planning use 10–12% for equity SIPs and 7–8% for hybrid funds. Lower assumptions (8%) build margin of safety.

What is a step-up SIP?

A step-up (or 'top-up') SIP automatically increases your monthly contribution by a fixed % each year — usually matching your salary increment. A 10% annual step-up on a ₹10,000 SIP grows to ₹17,716 by year 7 and meaningfully boosts your final corpus without conscious effort.

Tax depends on jurisdiction. In India, equity mutual fund gains held over 12 months are LTCG taxed at 12.5% above ₹1.25 lakh exemption (FY25). UK gains are taxed under CGT (£3,000 allowance). US mutual fund gains held over 12 months get long-term capital gains rates (0/15/20%). This calculator shows pre-tax future value.

📈 SIP / Mutual Fund Calculator

Project the future value of your mutual fund SIP. Models monthly contributions, optional lump sum and annual step-up. Currency-agnostic.

Currency

Investment Period (years)

Monthly SIP

One-Time Lump Sum (optional)

Expected Annual Return (%)

Annual Step-Up (%)0 = constant SIP. 10% common for salary hikes.

⚠️ Illustrative only. Past performance ≠ future returns. Mutual funds carry market risk. Read scheme documents carefully. Pre-tax projection — capital gains tax treatment varies by jurisdiction. Not investment advice.

How a SIP Builds Long-Term Wealth

A Systematic Investment Plan is a disciplined way to invest a fixed amount in mutual funds every month, no matter what the market is doing. Three quiet forces do the heavy lifting:

Rupee/dollar-cost averaging — when NAVs fall you buy more units; when they rise you buy fewer. Over time your average cost per unit stays below the highs.
Compounding — every gain reinvests and earns its own gain. The last 5 years of a 20-year SIP usually contribute more than the first 10 combined.
Behavioural discipline — automation removes the temptation to time the market. Most investors who try to time the market underperform a steady SIP.

The Formula

For a constant monthly SIP of P, monthly rate r, over n months:

FV = P × [((1+r)ⁿ − 1) / r] × (1+r)

Where r = annual return / 12. A lump sum compounds separately as L × (1+r)ⁿ. A step-up SIP applies the formula year-by-year with the contribution incremented each January.

SIP vs Lump Sum

If you have a windfall and a 10+ year horizon, mathematically a lump sum invested today usually beats spreading it over a SIP — because the money has more time to compound. SIPs win on volatility management and on the (very common) reality that most savers don't have a lump sum to deploy. Many advisors suggest splitting: invest ⅓ as lump sum, the rest via 6–12 month STP into the same fund.

Choosing the Step-Up

An annual step-up matched to your salary growth (typically 8–10%) compounds spectacularly. A constant ₹10,000 SIP at 12% over 20 years grows to about ₹1 crore. Add a 10% annual step-up and you cross ₹1.7 crore — for the same proportional effort.

Realistic Return Assumptions

Indian large-cap funds: 11–13% historical (15-yr CAGR)
Indian small/mid-cap funds: 13–16% with much higher volatility
Global equity index (S&P 500 / MSCI World): 8–10% USD
Hybrid / balanced funds: 8–10%
Debt funds: 6–7%

Use 10% as a sensible default for projections. Plan for 8% if you want a margin of safety; assume 12% only if you fully accept equity volatility.

⚠️

Important Note: Mutual fund investments are subject to market risks. Read all scheme-related documents carefully before investing. Past performance is not a guarantee of future returns. Consult a SEBI-registered investment adviser (India) or FCA-authorised IFA (UK) before committing significant capital.

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