What is CAGR and how is it different from absolute return?

CAGR (Compound Annual Growth Rate) is the annualised rate at which an investment grew. Absolute return is total growth without considering time. A 100% absolute return over 10 years is only about 7.2% CAGR.

Is a monthly SIP better than a yearly lump sum?

SIP averages your purchase price over time (rupee cost averaging), reducing risk of investing at a market peak. A lump sum invested at the right time can outperform SIP, but timing the market is unreliable. SIP is generally recommended for salaried investors.

How do I calculate how much I need to invest to reach a target?

Rearrange the SIP formula: PMT = FV × (r/n) / [((1 + r/n)^(n×t) − 1)]. The investment calculator can solve for PMT automatically.

What annual return should I assume for equity SIP?

Historical equity mutual fund returns in India average 10–14% annually over long periods. For conservative planning, use 10–11%. For international funds or US indices, 9–11% is commonly used. Returns are not guaranteed.

Formula Guide

How to Calculate Investment Returns (SIP & Lump Sum)

There are two common ways to invest: a lump sum (a single upfront amount) or SIP (Systematic Investment Plan — regular periodic contributions). The lump sum uses the compound interest formula directly, while SIP uses the future value of an annuity formula. Understanding both lets you project how much your investments will grow and compare different strategies.

Last updated: March 31, 2026

The Formula

Lump Sum FV = P × (1 + r/n)^(n×t)
SIP FV = PMT × [((1 + r/n)^(n×t) − 1) / (r/n)]
CAGR = (FV / P)^(1/t) − 1

r is the annual interest rate as a decimal. For monthly SIP with annual rate r, use r/12 as the period rate and t×12 as total periods.

Variable Definitions

Symbol	Name	Description
P	Principal	The initial lump sum invested
PMT	Periodic Payment	The fixed amount contributed each period in a SIP
r	Annual Rate	Expected annual return as a decimal (e.g. 10% = 0.10)
n	Compounds per Year	12 for monthly SIP, 1 for annual
t	Years	Total investment duration in years

Step-by-Step Example

You invest ₹5,000 per month in a SIP for 10 years at an expected annual return of 12%. What is the future value?

Given

Monthly SIP (PMT):₹5,000Annual return (r):12% = 0.12Period rate (r/n):0.12 / 12 = 0.01Total months (n×t):12 × 10 = 120

Solution

1
Calculate (1 + 0.01)^120: (1.01)^120 = 3.3004
2
Subtract 1: 3.3004 − 1 = 2.3004
3
Divide by period rate: 2.3004 / 0.01 = 230.04
4
Multiply by PMT: 5000 × 230.04 = ₹11,50,200
5
Total invested: 5000 × 120 = ₹6,00,000

Future value ≈ ₹11,50,200. You invested ₹6,00,000 and earned ₹5,50,200 in returns.

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Common Mistakes to Avoid

Using annual rate directly for monthly SIP — divide annual rate by 12 to get the monthly period rate.

Confusing FV (future value) with profit — profit = FV − total amount invested.

Assuming returns are guaranteed — SIP returns in equities are estimated, not fixed.

Ignoring inflation — a nominal return of 12% with 6% inflation is a real return of only ~5.7%.

Frequently Asked Questions

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