SIP Calculation Explained: Monthly Contributions and Compounding

A SIP projection is a cash-flow illustration

A systematic investment plan spreads contributions over time. It is a method of contributing, not a promise of an interest rate. The SIP Calculator estimates a future value from a fixed monthly contribution, an assumed annual return and a duration. It does not fetch fund prices, choose investments or predict market performance.

SEBI's investor calculator cautions that projections are illustrations rather than actual returns. Use different assumptions to understand sensitivity, not to label one scenario as assured.

The implemented formula uses month-end contributions

Let M be the monthly amount, i the assumed annual percentage divided by 100 and by 12, and n the years multiplied by 12.

Future value = M × ((1+i)ⁿ − 1)/i

Contributions = M × n; estimated growth = future value − contributions.

For whole months, the equivalent recurrence is balance = previous balance × (1+i) + M. Growth is applied first, then the contribution is added. The last contribution therefore receives no growth before the end point. At zero assumed return, future value is simply M × n.

The tool divides the annual input by 12. A nominal 12% assumption therefore means 1% per month, with an effective one-year growth factor of 1.01¹², about 12.6825% growth for money present for the whole year. An effective annual return converted using (1+R)^1/12−1 would be a different convention. Comparing calculators requires matching that convention as well as deposit timing.

₹5,000 per month for one year

Enter monthly investment 5000 and duration 1 year. Twelve contributions total ₹60,000. The following are hypothetical constant-rate scenarios, not forecasts:

At 12%, month one's ending balance is ₹5,000. Month two is 5,000 × 1.01 + 5,000 = ₹10,050; month three is 10,050 × 1.01 + 5,000 = ₹15,150.50. Continuing for twelve months reproduces the table. The interface rounds amounts to whole rupees, so compare like precision.

Why another calculator might show a larger number

If the same twelve deposits occur at the beginning of each month, each has one extra month of growth. Multiply the month-end future value by 1.01 in the 12% scenario: ₹64,046.64, about ₹634.13 more. This is a timing comparison, not an alternative selectable mode in this tool.

The regular-deposit compounding guide also includes an initial lump sum. This SIP tool starts from zero and does not automatically increase contributions each year, include skipped payments or model an existing balance.

Fractional durations, losses and actual performance

The implementation uses n = years × 12 without rounding. A value such as 1.04 years produces n = 12.48 and contributions of ₹62,400 at ₹5,000/month. That is a mathematical interpolation, not a schedule of 12.48 real payments. Choose a duration corresponding to whole months for a discrete monthly plan.

The calculator accepts non-negative return assumptions, so it cannot illustrate investment losses. Real investments can lose money. The model also excludes fees, taxes, inflation and changes in contribution dates or market returns. Dividing the final gain by total contributions is not an annualized return measure for staggered cash flows.

For an actual investment, reconcile transaction dates, amounts, units and valuation records rather than treating this projection as a statement of performance. Read SEBI's discussion of investment risk and return assumptions. This explanation is educational, not personalized investment advice.

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