What is SIP?
A Systematic Investment Plan (SIP) is a method of investing a fixed amount at regular intervals (typically monthly) into mutual fund schemes. According to the Association of Mutual Funds in India (AMFI), monthly SIP contributions crossed ₹26,000 crore in early 2026 — a remarkable increase from under ₹8,000 crore just five years earlier. As of March 2026, there are over 10.3 crore (103 million) active SIP accounts in India, as reported by AMFI.
SIPs work on three key principles: rupee cost averaging (buying more units when prices are low, fewer when high), the power of compounding (earnings on earnings over time), and behavioral discipline (automated investing removes emotional decisions). All three together is what makes SIPs effective over long periods, as documented in SEBI's investor education materials.
SIP calculation formula
The SIP return is calculated using the future value of annuity formula, which is the standard formula recommended by SEBI and AMFI for all Indian mutual fund calculators:
Where:
M = Maturity value (future value)
P = Monthly SIP amount
i = Monthly rate of return (annual rate ÷ 12 ÷ 100)
n = Total number of monthly installments
Monthly rate = 12/12/100 = 0.01. Number of months = 120. Maturity = ₹10,000 × {[(1.01)^120 - 1] / 0.01} × 1.01 = ₹23.23 lakhs. Total invested = ₹12.00 lakhs. Wealth gain = ₹11.23 lakhs (93.6% return on investment). This demonstrates the power of compounding over a decade.
Historical mutual fund returns (India)
| Fund category | 5-year avg CAGR | 10-year avg CAGR | Risk level |
|---|---|---|---|
| Large cap equity | 12-15% | 12-14% | Moderate |
| Mid cap equity | 15-20% | 14-18% | High |
| Small cap equity | 18-25% | 15-20% | Very high |
| Hybrid / Balanced | 10-13% | 10-12% | Moderate |
| Debt / Bond | 6-8% | 7-8% | Low |
| Index (Nifty 50) | 12-14% | 12-13% | Moderate |
Source: Approximate category averages based on AMFI India data as of March 2026. Past performance does not guarantee future returns. Mutual funds are subject to market risk as per SEBI regulations. Please read all scheme-related documents carefully before investing.
SIP taxation rules (FY 2025-26)
Each SIP installment is treated as a separate purchase for tax purposes, following the FIFO (First In, First Out) method upon redemption. As per the Finance Act 2025:
- Equity funds (holding > 12 months): Long-Term Capital Gains (LTCG) taxed at 12.5% on gains exceeding ₹1.25 lakh per financial year.
- Equity funds (holding ≤ 12 months): Short-Term Capital Gains (STCG) taxed at 20%.
- Debt funds: Taxed at applicable income tax slab rate regardless of holding period (post Finance Act 2023 amendment).
- ELSS funds: SIPs in ELSS (Equity Linked Savings Scheme) qualify for Section 80C deduction up to ₹1.5 lakh under the old tax regime, with a 3-year lock-in period.
Compare with FD returns
See how SIP returns compare with guaranteed FD returns over the same period.
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