What is a SIP?
A Systematic Investment Plan (SIP) puts a fixed amount into a mutual fund every month, usually by auto debit from your bank. Because you buy every month, you get more units when prices are low and fewer when they are high, and you never have to time the market.
How SIP Returns Are Calculated
Future value = P × [(1 + i)n − 1] ÷ i × (1 + i)
Here P is the monthly amount, i is the yearly return divided by 12 (as a fraction), and n is the number of months. The last “× (1 + i)” is there because each instalment is invested at the start of the month.
Example: ₹10,000 a month for 15 years at 12% a year.
You invest ₹18,00,000. It grows to about ₹50,45,760, so roughly ₹32,45,760 is returns.
Keep in Mind
- Mutual fund returns are not fixed. 12% is a common long term assumption for equity funds in India, but some years are negative.
- Raising your SIP every year, a step up SIP, makes a large difference. The same ₹10,000 raised by 10% each year comes to about ₹86.8 lakh in 15 years.
- Equity fund gains above ₹1.25 lakh a year are taxed at 12.5% when held over a year.