SIP Calculator 2026 — How Compounding & Tax on Returns Work
A SIP calculator turns "₹10,000 a month" into a projected corpus — and seeing the compounding curve is the best motivation to start early. Here's what's happening under the hood, plus the tax that applies when you redeem.
Quick Answer
A SIP calculator projects the future value of regular monthly investments using monthly compounding: it applies an assumed annual return, converted to a monthly rate, to each instalment over time. The output is an estimate, not a guarantee. When you redeem, equity-fund gains are taxed as capital gains — 12.5% LTCG (above ₹1.25 lakh) after a year, or 20% STCG within a year.
✓Key Takeaways
- SIP growth comes from monthly compounding on every instalment.
- Longer horizons matter more than higher contributions — time beats timing.
- Equity SIP gains: 12.5% LTCG above ₹1.25L (held > 1 yr); 20% STCG within a year.
- The projected figure assumes a constant return — real markets vary.
The maturity formula
A SIP calculator uses the future value of a series formula:
M = P × [ (1 + i)ⁿ − 1 ] / i × (1 + i)
where P = monthly investment, i = monthly rate (annual return ÷ 12), and n = number of instalments. You don't need to compute it by hand — the calculator does — but it shows why two levers dominate: how long you invest and the rate you assume.
A simple projection
₹10,000/month for 15 years at an assumed 12% annual return:
| Metric | Value |
|---|---|
| Total invested | ₹18,00,000 |
| Projected corpus | ≈ ₹50,45,000 |
| Wealth gained | ≈ ₹32,45,000 |
How your SIP gains are taxed
Each SIP instalment has its own holding period. When you redeem:
- Units held over 12 months → LTCG at 12.5% on gains above the ₹1.25 lakh annual exemption (equity).
- Units held under 12 months → STCG at 20% (equity).
- For debt funds, gains are taxed at your slab rate regardless of period.
Because of the per-instalment rule, your earliest instalments may be long-term while recent ones are short-term — the calculator's wealth figure is pre-tax, so plan redemptions to use the yearly exemption.
Using the calculator well
- Enter a realistic return (10–12% for equity is common for planning, not a promise).
- Test longer tenures to see the compounding effect.
- Add a step-up (increasing SIP yearly) if the tool supports it — it materially raises the corpus.
Frequently Asked Questions
Is the projected return guaranteed?
No. The calculator assumes a fixed annual return for illustration. Actual mutual fund returns fluctuate with the market.
Are SIPs in ELSS funds tax-saving?
Yes — ELSS qualifies for Section 80C (old regime) up to ₹1.5 lakh, with a 3-year lock-in per instalment.
How is tax calculated when I redeem?
As capital gains based on each instalment's holding period. Our capital gains guide explains the rates.
Project your wealth with our SIP calculator, and we'll handle the tax when you redeem.
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