Question 1

How is the SIP maturity value calculated?

Accepted Answer

Each monthly instalment compounds for the months remaining until maturity. The formula is M = P × [((1 + r)^n − 1) ÷ r] × (1 + r), where P is the monthly amount, r is the monthly rate (annual rate ÷ 12) and n is the number of months. It assumes investment at the start of each month and a constant return, which is a simplification: actual mutual fund returns vary month to month.

Question 2

What return should I assume?

Accepted Answer

Use the fund category's long-run average, not last year's figure. Large-cap equity funds have historically returned around 11 to 13 percent a year over 10-plus years, hybrid funds less, debt funds around 6 to 8 percent. A conservative assumption makes the plan more robust; the calculator lets you try several.

Question 3

What is a step-up SIP?

Accepted Answer

A SIP where the monthly amount increases by a fixed percentage each year, usually in line with salary growth. A 10 percent annual step-up on a ₹10,000 SIP means ₹11,000 in year two, ₹12,100 in year three, and so on. Over 15 to 20 years the step-up often contributes more to the final corpus than the starting amount.

Question 4

Is the maturity amount taxable?

Accepted Answer

Gains on equity mutual funds held over 12 months are long-term capital gains, taxed at 12.5 percent above an annual exemption of ₹1,25,000; gains within 12 months are taxed at 20 percent. Each SIP instalment has its own purchase date, so the holding period is counted instalment by instalment. Debt fund gains are taxed at your slab rate.

Question 5

Does the calculator account for inflation?

Accepted Answer

No. The maturity value is in nominal rupees. To see purchasing power, reduce the expected return by your inflation assumption, for example 12 percent return less 6 percent inflation gives a real return of about 6 percent.

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