How SIP Returns Are Calculated: Formula and Worked Examples

A systematic investment plan (SIP) puts a fixed amount into an investment every month. Because each instalment is invested at a different time, the maths is a little different from a one-off deposit. This guide shows the formula, works through real numbers, and explains what changes the result most. You can check every figure with our free SIP Calculator, which runs in your browser and needs no sign-up.

The SIP formula

For a monthly investment P, a monthly rate i (annual return divided by 12) and n months, the future value when each instalment is invested at the start of the month is:

FV = P × [((1 + i)^n − 1) / i] × (1 + i)

The part in square brackets is the future value of a series of equal payments. The final (1 + i) accounts for each payment earning a full month of growth, because it is invested at the beginning of the month.

• P: amount invested each month
• i: annual return ÷ 12 ÷ 100 (12% a year is 0.01 a month)
• n: years × 12

Total invested is simply P × n. Estimated returns are FV minus total invested.

Worked example: 500 a month for 10 years at 12%

• P = 500, i = 0.01, n = 120
• (1.01^120 − 1) / 0.01 ≈ 230.04
• × 1.01 ≈ 232.34
• × 500 ≈ 116,170

You invested 60,000 in total, so the estimated gain is about 56,170. Change the inputs in the SIP Calculator to see how the result moves.

Time matters more than amount

Keeping the same 500 a month and 12% assumed annual return, only the duration changes:

Duration	Total invested	Estimated value
10 years	60,000	about 116,170
20 years	120,000	about 499,574
30 years	180,000	about 1,764,957

Doubling the time from 10 to 20 years does not double the outcome; it grows it by more than four times. Going from 20 to 30 years adds a further 3.5 times. That is compounding: returns start earning returns of their own.

The return rate is the other big lever

Same 500 a month for 20 years (120,000 invested), different assumed annual returns:

• At 8%: about 296,474
• At 12%: about 499,574

A four percentage point difference in assumed return changes the final value by roughly 200,000. Real markets do not deliver a steady rate, so treat any single rate as a planning assumption, not a promise.

What a step-up SIP does

A step-up SIP raises your monthly amount by a set percentage each year, for example when your income grows. Starting at 500 a month and increasing it 10% every year for 20 years, at 12%, you would invest about 343,650 in total and reach roughly 994,436, nearly double the flat 500 plan, for around 2.9 times the money invested. Use the step-up option in the calculator to test your own numbers.

Why a SIP result is an estimate

• Returns are not constant. The formula assumes the same rate every month. Real investments rise and fall.
• Costs reduce the result. Fund fees, taxes and transaction charges are not in the basic formula.
• Inflation reduces what the money buys. See our guide to inflation-adjusted SIP returns for how to account for that.

Quick checklist

1. Pick a realistic return rate, not the best year you remember.
2. Choose the longest horizon you can commit to.
3. Consider a yearly step-up if your income will grow.
4. Check the result in real terms after inflation.
5. Re-run the numbers once a year.

Try your own figures in the free SIP Calculator.

This article is for general education, not financial advice. Examples are illustrative, use a constant assumed return, and ignore fees and taxes.