What is a SIP and why does it work?
A Systematic Investment Plan (SIP) invests a fixed amount in a mutual fund every month. It builds discipline, lets you start small, and averages your purchase cost — you buy more units when prices fall and fewer when they rise. Over long periods, compounding does most of the work.
How the SIP formula works
M = P × ((1 + i)^n − 1) ÷ i × (1 + i)
P = monthly amount · i = annual return ÷ 12 ÷ 100 · n = months
Each instalment is invested at the start of the month and grows at the monthly rate until the end. The formula adds up all those growing instalments.
Worked example
₹10,000 a month at 12% for 10 years
- Total invested
- ₹12,00,000
- Estimated returns
- ₹11,23,391
- Maturity value
- ₹23,23,391
- With a 10% yearly step-up
- ₹33,74,326
How time and returns change the outcome
| ₹10,000 a month for | at 10% | at 12% | at 15% |
|---|---|---|---|
| 10 years | ₹20.66 Lakh | ₹23.23 Lakh | ₹27.87 Lakh |
| 15 years | ₹41.79 Lakh | ₹50.46 Lakh | ₹67.69 Lakh |
| 20 years | ₹76.57 Lakh | ₹1 Cr | ₹1.52 Cr |
Returns are not guaranteed. Mutual fund values move with markets; the return rate is only your assumption.
Making the most of your SIP
- Start early. Time matters more than the amount — the same SIP started five years earlier can grow far larger.
- Stay invested through falls. A falling market lets your fixed amount buy more units at lower prices.
- Match funds to goals. Equity funds suit goals five or more years away; debt funds suit shorter goals.
- Review yearly and increase the amount as your income grows.