Systematic Investment Plan (SIP) Formula
The total maturity amount of a Systematic Investment Plan is computed compounding every monthly installment at the periodic interest rate:
Where:
- M = Future Maturity Value (Expected Value)
- P = Monthly SIP Installment Amount
- i = Monthly Interest Rate (calculated as Annual return rate / 12 / 100)
- n = Total number of monthly installments (Tenure in years × 12)
Step-by-Step Example Calculation
Let's assume you start a SIP investing ₹10,00,000 per month for a duration of 10 years with a conservative mutual fund return rate of 12% per annum:
- P = ₹10,000
- i = 12% / 12 / 100 = 0.01 per month
- n = 10 years × 12 months = 120 monthly cycles
Applying values directly to the formula:
Over the course of 10 years, your total out-of-pocket investment is ₹12,00,000. Your generated wealth gain is ₹11,23,391, yielding an overall expected wealth portfolio of ₹23,23,391.
Yearly Wealth Compounding Projection
Below is the visual compound trajectory curve mapping your investment balance vs accumulated earnings over time:
Yearly Compounding Schedule
A detailed year-by-year breakdown of your accumulated investment contributions, generated interest wealth, and total portfolio valuation:
| Year | Monthly Installment | Annual Investment | Total Invested | Interest Earned | Ending Balance |
|---|
Frequently Asked Questions
A Systematic Investment Plan (SIP) is an investment vehicle offered by mutual funds, allowing investors to invest a fixed amount regularly (monthly or quarterly) into a chosen mutual fund scheme instead of making a one-time lump sum payment.
Compounding in SIP means you earn returns not just on your initial investment amount, but also on the accumulated returns over time. As your returns earn more returns, your wealth grows exponentially over long tenures.
No. SIP investments are typically made into equity or debt mutual funds which are subject to market conditions. Therefore, returns are estimated based on past average performance trends and are not legally guaranteed.