SIP Calculator

A fixed monthly sum buys more units when prices fall and fewer when they rise. Over a full market cycle this pulls your average cost per unit below the average price across the same period — the mechanism usually called rupee cost averaging.

The practical benefit is behavioural as much as mathematical. Investing on a schedule removes the decision of when to buy, which is the point at which most people act on fear or enthusiasm and damage their own returns. A falling market, which feels like the worst time to invest, is precisely when each instalment buys the most units.

Averaging reduces timing risk; it does not remove market risk. If a fund declines steadily over your whole holding period, averaging simply means you bought the decline at a better average price.

The maturity figure assumes a constant annual return, which no equity market delivers. Real returns arrive unevenly, with strong years and negative ones, and the order in which they occur affects your final balance even when the average is identical.

Treat the output as an illustration of compounding rather than a forecast. A useful habit is to run the calculation three times — at a pessimistic, moderate and optimistic rate — and plan around the lower end rather than the headline number.

The projection also ignores costs. Fund expense ratios reduce returns every year, and while an index fund charging a fraction of a percent barely dents the outcome, an actively managed fund charging significantly more compounds against you over decades.

Mutual fund taxation in India depends on the type of fund and how long you stay invested. Equity-oriented funds are taxed at one rate for short holding periods and a lower rate for long-term gains above an annual exemption threshold. Debt-oriented funds are treated differently again.

A detail specific to SIPs catches many investors out: each instalment is treated as a separate purchase with its own holding period. When you redeem, the units bought most recently may not yet qualify as long-term even though you started the SIP years ago.

Rates and thresholds have changed more than once in recent years, so confirm the current position with the Income Tax Department or a qualified adviser before planning a redemption around tax.