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SIP Returns Explained: How Monthly Investing Grows

By Antuparthi Manoha Malik PaulPublished 3 October 20267 min read

How SIP future value is calculated, why returns are not guaranteed, what step-up SIPs do, and how to read XIRR versus CAGR.

A systematic investment plan (SIP) invests a fixed amount in a mutual fund every month. It's the most popular way Indians invest in markets — but the numbers on SIP calculators are easy to misread. Here's what they actually mean.

How the future value is calculated

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

Each monthly instalment P grows for a different length of time: the first for the full period, the last for one month. With an assumed annual return, r is the monthly rate and n the number of instalments. The final (1 + r) assumes you invest at the start of each month.

An example

₹10,000 a month for…InvestedValue at 12% a year
10 years₹12 lakh≈ ₹23.2 lakh
20 years₹24 lakh≈ ₹99.9 lakh

Doubling the time doesn't double the result — it more than quadruples it, because the growth itself keeps growing. Starting early matters more than any other choice.

Why your actual returns will differ

Calculators assume a constant return every month. Real equity funds might gain 30% one year and fall 15% the next. The order of returns matters: a fall near the end of your plan hurts more than one at the start, because more money is invested by then. Treat calculator results as a rough guide, and use a conservative rate. At 10% instead of 12%, the 10-year example above grows to about ₹20.7 lakh; at 8%, about ₹18.4 lakh.

XIRR vs CAGR

Fund factsheets usually quote CAGR — the annual growth rate of a single lump sum. A SIP has many investments made at different times, so its return is measured with XIRR, which weights each instalment by how long it was invested. Your app's “returns” figure for a SIP is normally XIRR. Comparing a SIP's XIRR with a fund's CAGR isn't like for like.

Step-up SIPs

Increasing your SIP each year as your salary rises makes a large difference. With a 10% yearly step-up, ₹10,000 a month for 10 years means investing about ₹19.1 lakh in total, and at 12% the estimated value rises to roughly ₹33.7 lakh, compared with ₹23.2 lakh for a flat SIP.

Don't forget inflation and tax

₹1 crore in 20 years won't buy what ₹1 crore buys today. At 6% inflation, prices more than triple in 20 years. Gains on equity funds are also subject to capital gains tax when you redeem. Check the real value with the inflation calculator.

Try it

This guide is general information, not investment advice. Mutual fund investments are subject to market risks.