The maths of monthly investing, what compounding really does over 20 years, and the assumptions that make projections look better than reality.
FV = P × [((1 + i)n − 1) ÷ i] × (1 + i)
P is the monthly instalment, i the expected annual return ÷ 12, and n the number of months. The extra (1 + i) is there because each instalment is invested at the start of the month.
₹10,000 a month at 12% for 10 years: i = 0.01, n = 120. (1.01)120 = 3.300, so FV = 10,000 × 230.04 × 1.01 = ₹23.23 lakh on ₹12 lakh invested. Over 20 years the same SIP grows to about ₹99.9 lakh on ₹24 lakh invested.
Raising the instalment 10% each year, in line with salary, roughly doubles the final corpus over 20 years at 12% — about ₹1.99 crore versus ₹99.9 lakh for a flat ₹10,000 SIP.
Markets do not deliver a steady 12%. A SIP buys more units when prices fall (rupee-cost averaging), so the sequence of returns changes the outcome. Expense ratios, exit loads and capital gains tax (12.5% LTCG above ₹1.25 lakh on equity) also reduce what you keep.
A lump sum invested at the start compounds for longer, so it usually ends higher in a rising market. SIPs reduce timing risk and fit monthly income. Compare both with the lumpsum calculator.
