What is a SIP and how does it work?
A Systematic Investment Plan, or SIP, is a method of investing a fixed amount in a mutual fund at regular intervals — typically once a month. Instead of timing the market with a single lumpsum, a SIP buys mutual-fund units across market cycles, automatically buying more units when prices are low and fewer when they're high. This averaging effect is called rupee-cost averaging, and it's the single biggest reason SIPs are the default mutual-fund vehicle for Indian retail investors.
A SIP is not an investment product itself — it's a transaction mode. You're still buying units of a specific mutual-fund scheme (equity, debt, hybrid or ELSS) — you're just doing it monthly via auto-debit. That distinction matters: the returns depend on the underlying fund, not the SIP wrapper.
How the SIP calculator works
The future value of a regular monthly SIP at a constant return rate is computed using the future value of an annuity-due formula:
M = P × ((1 + i)n − 1) / i × (1 + i)
where M is the maturity value, P is the monthly SIP amount, i is the monthly rate (annual rate ÷ 12 ÷ 100) and n is the total number of monthly instalments. The (1 + i) multiplier reflects that each contribution is made at the start of the month and earns one extra month of interest.
Calc Center's engine evaluates this formula iteratively, generating the year-by-year wealth curve so you can see exactly how compound interest behaves in years 1, 5, 10 and 20. The result of a ₹25,000-per-month SIP at 12% over 10 years is ₹58,08,477— invested principal of ₹30,00,000 plus estimated returns of ₹28,08,477. This number matches Groww's published reference value to the rupee.
Step-up SIP — the most under-used wealth lever
A flat ₹10,000-per-month SIP for 20 years at 12% gives you about ₹99 lakh. The same SIP, increased by 10% every year (a step-up SIP, mirroring typical salary hikes), gives you about ₹2.16 crore — more than double, despite only contributing ₹68 lakh of principal versus ₹24 lakh in the flat case.
That gap is the single most important number for any salaried Indian investor in their 20s or 30s. Annual increments, properly redirected to your SIP, are what separate "I retired comfortably" from "I retired with a struggle."
Why inflation-adjusted returns matter
A 12% nominal return at 6% inflation is only a 5.66% real return. ₹58 lakh in 2036 will not buy what ₹58 lakh buys in 2026. Toggle the Inflation slider in Advanced Options to see purchasing-power-adjusted values — the same SIP scenario shown in today's rupees, which is how you should actually plan retirement and large goals.
SIP vs Lumpsum — which is better?
Mathematically, if returns are uniformly positive, lumpsum wins because the full amount compounds for the entire period. In practice, returns are volatile, so SIPs reduce sequence-of-returns risk by averaging the entry price across many market levels. Most Indian advisers recommend a hybrid: invest any windfall (bonus, RSU sale, inheritance) as a lumpsum into a debt fund, then SIP from there into equity over 6–12 months — a Systematic Transfer Plan or STP.
Tax treatment of SIP gains
For equity funds, gains realised after 1 year are Long Term Capital Gains, taxed at 12.5% on amounts above ₹1.25 lakh per year. Gains within 1 year are Short Term, taxed at 20%. Crucially, each SIP instalment has its own holding period — units bought 11 months ago are still STCG even if your first instalment is 5 years old. ELSS funds (tax-saving SIPs) get an 80C deduction up to ₹1.5 lakh per year and a 3-year lock-in.
Common SIP mistakes
- Stopping during market crashes. SIPs work because you keep buying when prices fall. Pausing locks in losses.
- Picking funds by past 1-year returns. Last year's top performer is rarely next year's — pick by long-term consistency.
- Not stepping up. A flat SIP loses to inflation in real terms. Step it up annually.
- Treating SIP as a goal.The SIP is the vehicle; retirement, a house, a child's education are the goals.
Use the calculator above to test different SIP amounts, return rates and step-up percentages. Try the same scenario with the inflation slider on to see real values. When you find a scenario you like, click Share to send the URL — your inputs are encoded in it so the recipient sees exactly your numbers.