The SIP (Systematic Investment Plan) formula calculates the maturity value of a series of fixed monthly investments compounding at a given rate of return. Unlike a lump sum, where one amount compounds for the full duration, a SIP formula has to account for every monthly instalment compounding for a different length of time — the first instalment grows for the whole period, the last one barely grows at all.
Formula
FV = P × [(1 + r)ⁿ − 1] / r × (1 + r)
| Variable | Meaning |
|---|---|
| FV | Future value — your maturity corpus |
| P | Fixed monthly investment amount |
| r | Monthly rate of return (annual rate ÷ 12 ÷ 100) |
| n | Total number of monthly instalments |
Worked Example
Investing ₹10,000 per month for 15 years (180 months) at an expected 12% annual return:
- Monthly rate: r = 12% ÷ 12 ÷ 100 = 0.01
- FV = 10,000 × [(1.01)¹⁸⁰ − 1] / 0.01 × 1.01 = ₹50,45,760
- Total invested: ₹10,000 × 180 = ₹18,00,000
- Wealth gained from compounding: ₹32,45,760
Notice that the gain (₹32.46 lakh) is nearly double the invested amount (₹18 lakh) — that gap is entirely the effect of compounding over 15 years, not additional contributions.
Key Things to Know
- The formula assumes a constant monthly rate, but real mutual fund returns vary month to month. The final result is a smoothed projection, useful for planning but not a prediction of the exact final number.
- Small changes in duration matter more than small changes in the monthly amount at longer horizons, since compounding has more time to work — extending the same SIP from 15 to 20 years often adds more to the corpus than doubling the monthly amount for 15 years.
- XIRR, not this formula, is used to measure actual historical SIP returns once contributions have happened at different NAVs — this formula is for forward projection, not backward measurement.
- A Step-Up SIP formula is a variant that increases the monthly amount periodically rather than keeping P constant, compounding faster than the standard formula shown here.