SIP Calculator formula — how it actually works

The SIP formula looks intimidating, but it only does one sensible thing: it adds up every monthly investment, each grown by compound interest for the months left until the end. Written out, maturity value = P × (((1 + i)^n − 1) ÷ i) × (1 + i), where P is the monthly investment, i is the monthly return rate and n is the number of months.

Where i and n come from

Funds quote an annual return, so i is that rate divided by 1,200 — by 12 for the months, and by 100 for the percentage. A 12% annual return becomes a monthly rate of 1%. And n is the tenure in months: 10 years is 120 investments. Those two conversions are the most common source of wrong answers when people try the formula themselves.

Why the power term is there

Each monthly investment grows for a different length of time. The first investment grows for all 120 months, the last for just one. The (1 + i)^n term is compound growth running forward over the whole tenure, and the rest of the formula adds up all those different growth periods into one total. The final (1 + i) appears because this calculator assumes each investment is made at the start of the month, so even the last one earns one month of growth.

Worked example

₹5,000 a month at 12% a year for 10 years grows to ₹11,61,695. You invest ₹6,00,000 over those 10 years, so the gain is ₹5,61,695. In the first year the gain is small, because only twelve investments have had time to grow. By the final years, the balance is large and each month’s return is large too — that acceleration is compounding, and it is why starting early matters more than starting big.

Frequently asked questions

What if the return is 0%?

The formula divides by zero, so the calculator handles it separately: the maturity value is simply the monthly amount multiplied by the number of months.

Does the formula include taxes or fees?

No. Taxes, fund expenses and exit loads sit outside the formula, so a fund’s final value can differ from the calculator’s projection.

Is this a lump-sum formula?

No, it is the SIP version. A lump sum grows as a single amount, while a SIP adds a new investment every month, which is why the formula sums many growth periods.