SIP Projections Explained: What the Calculator Assumes and Why Real Returns Differ

Put ₹10,000 a month into the SIP Calculator at an assumed 12% annual return for 10 years, and it projects a final value of roughly ₹23,23,390 — you'd have invested ₹12,00,000 of your own money, with about ₹11,23,390 coming from returns. That number is a projection built on a specific set of assumptions, not a promise. This guide walks through what those assumptions are, so you can read the number for what it actually represents.

What a SIP is, mechanically

A Systematic Investment Plan is a fixed amount invested at a regular interval — monthly, here — into a mutual fund. Each instalment buys units at that month's price (its Net Asset Value, or NAV), so you buy more units when the price is low and fewer when it's high. That averaging is the whole mechanical idea behind a SIP; it says nothing about what the fund's underlying investments will actually do.

The formula, and when each instalment starts earning

The calculator uses FV = P × [((1 + r)ⁿ − 1) ÷ r] × (1 + r), where P is the monthly amount, r is the monthly rate of return (annual rate ÷ 12 ÷ 100), and n is the number of instalments. That trailing × (1 + r) reflects one specific, and common, assumption: each instalment is invested at the start of the month and so earns a full month of return before the next one arrives — an "annuity due", rather than an instalment invested at month-end that would only start earning the following month. In practice your actual SIP date and market movement decide this, so the real figure will differ slightly either way.

Nominal rate vs. effective rate

Dividing the annual rate by 12 to get a monthly rate is a standard convention, but it's worth knowing what it quietly implies: compounding 1% a month for 12 months doesn't give you 12% for the year, it gives you about 12.68%, because each month's return also earns return the following month. A "12% SIP return" under this convention is therefore a slightly higher effective annual return than a plain 12% would be if it compounded only once a year — the same nominal-vs-effective gap that shows up any time a rate compounds more often than once a year, whether it's a SIP, a fixed deposit, or a loan.

A constant rate vs. a volatile one

The calculator's 12% is a single, unchanging number applied to every month for the whole tenure. A real equity mutual fund's monthly return is never that tidy — it might be up 4% one month and down 6% the next, landing on roughly the same long-run average only over several years. Two funds can land on the exact same average annual return over 10 years while having a completely different month-to-month ride, and the order those ups and downs arrive in doesn't actually change a SIP's final value much, since you're buying at a mix of prices throughout either way. The number the calculator gives you is the value a constant, average return would have produced — a reference point for comparing assumptions, not a forecast of the path you'll actually experience.

Inflation: the return that matters is the one after it

₹23,23,390 ten years from now won't buy what ₹23,23,390 buys today. If prices rise at, say, 6% a year on average, a 12% projected return is closer to a 6% real (inflation-adjusted) return in today's purchasing power. The calculator doesn't subtract inflation for you — if you want a rough sense of purchasing power, compare the projected value against what the same rupee amount is worth today at your own assumed inflation rate, or re-run the calculator at (your expected return − your assumed inflation rate) to get a rough "real" projection instead.

Costs and taxes aren't in the number

The projection is gross of everything: no expense ratio, no exit load if you redeem early, and no tax. In India, gains on equity mutual funds held over a year are taxed as long-term capital gains, and funds sold within a year attract short-term capital gains tax at a different rate — neither is factored into the figure shown. The projected value is a pre-cost, pre-tax number; what you'd actually receive on redemption would be somewhat lower.

What the calculator doesn't model

• A single, constant return for the entire tenure, not the sequence of ups and downs a real fund would have.
• No expense ratio, exit load, or tax on the gains.
• No missed or irregular instalments — it assumes every month's SIP goes through on schedule for the full duration.
• No adjustment for inflation — the value shown is in future rupees, not today's purchasing power.

Because the projected annual return is the input the result is most sensitive to, and the hardest one to know in advance, it's worth running the calculator at a few different rates — a conservative 8% alongside a more optimistic 12–14% — rather than treating one number as the answer.

This is a projection tool, not investment advice, and nothing here is a recommendation to invest in any particular fund or product. For a lump-sum comparison rather than monthly instalments, see the Compound Interest Calculator. For fixed-rate savings instruments where the rate is a published, contracted number rather than an assumption, see the FD, RD and PPF calculators.