How this instrument works
A SIP — Systematic Investment Plan — is the term Indian mutual funds use for a fixed sum invested every month, and it is common for an investor who already holds a lump sum (a bonus, a matured fixed deposit, an inheritance, or an EPF withdrawal) to keep that money invested rather than sit in cash while continuing the same monthly SIP they already run. Initial lump-sum investment, $ takes the balance already committed, Monthly SIP contribution, $ takes the ongoing monthly instalment, and both are asked to answer one question: what does the whole arrangement total to by the end of Investment horizon, months?
The two streams never interact inside the formula. Initial lump-sum investment, $ is treated exactly like a single deposit compounding monthly for the full Investment horizon, months — the same L(1+r)ⁿ used for any one-time sum. Monthly SIP contribution, $ is treated as a separate, ongoing series: each instalment starts compounding from the month it lands, so the first payment earns nearly the full horizon of growth and the last earns almost none, and the closed-form geometric sum ((1+r)ⁿ − 1) ⁄ r adds up every instalment's own growth in one step. Future value, $ is nothing more than those two independently computed totals placed side by side and added.
Three things sit outside this arithmetic. Expected annual return, % is held perfectly flat for every one of the Investment horizon, months, when a real mutual fund's monthly return bounces between gains and losses; a rate that looks reasonable as a long-run average can still misstate any single year along the way. Monthly SIP contribution, $ is fixed for the whole horizon — a step-up SIP that raises the instalment on a schedule compounds differently and needs its own calculation, not this one. And the result is nominal: expense ratios, exit loads, and capital gains tax on redemption all reduce what actually reaches a bank account, none of which this sheet subtracts.
- Enter the balance you already hold — a bonus, matured deposit, or similar — into Initial lump-sum investment, $.
- Set Monthly SIP contribution, $ to the fixed instalment you invest every month alongside it.
- Type the compound annual growth rate you expect the whole portfolio to earn into Expected annual return, %.
- Set Investment horizon, months to how long both the lump sum and the SIP keep running without a break.
- Read Future value, $ — the lump sum's own compounding added to the SIP's, combined into one number.
Worked example — a $100,000 lump sum with a $5,000 SIP
Set Initial lump-sum investment, $ to 100000, Monthly SIP contribution, $ to 5000, Expected annual return, % to 12, and Investment horizon, months to 120 — ten years. The monthly rate works out to r = 12 ⁄ 1200 = 0.01, and (1.01)^120 = 3.30038689457. Future value, $ returns $1,480,232.14, the sum of both streams compounded on that identical monthly rate.
Split the total to see each stream's share: the lump sum alone grows to $330,038.69 — a $100,000 deposit compounding monthly for ten years, nothing added — while the SIP alone reaches $1,150,193.45 from 120 instalments of $5,000, each compounding from the month it landed. Add those two figures and the $1,480,232.14 total reappears exactly, confirming the formula never lets one stream influence the other's growth.
Questions
Why does the total just add the lump sum and the SIP instead of blending them together?
Because neither stream affects how the other grows. The lump sum is one deposit compounding for the full horizon; the SIP is a separate series of instalments, each ageing from its own month. The closed-form formula computes both totals independently and places them side by side — addition, not blending, is the actual arithmetic of running two investments in parallel.
What does SIP mean, and why is the contribution assumed to stay the same every month?
SIP stands for Systematic Investment Plan, the term Indian mutual funds use for a fixed sum debited every month into a fund. This formula assumes that instalment never changes across Investment horizon, months; a step-up SIP that raises the monthly amount on a schedule compounds differently and needs its own calculation, not this one.
Why divide Expected annual return, % by 1200 instead of 100?
Dividing by 100 turns a percentage into a decimal fraction; dividing that fraction by 12 turns an annual rate into a monthly one, since Investment horizon, months counts months, not years. Folding both steps into a single division by 1200 is what lets the same rate apply once for every month the money is invested.
Does raising the lump sum change what the SIP portion grows into?
No. Setting Initial lump-sum investment, $ to zero and rerunning the numbers still returns the SIP's own total on its own, and setting Monthly SIP contribution, $ to zero returns only the lump sum's compounded value — proof the two totals are computed apart and merely added, never multiplied together or blended into a shared growth rate.
What does this future value leave out?
Fund expense ratios, exit loads on early redemption, and capital gains tax due when units are eventually sold all reduce what actually lands in a bank account. Expected annual return, % is also held perfectly constant, while a real mutual fund's monthly return varies; treat the output as the deterministic result of a steady assumption, not a forecast of what any specific fund will deliver.
References
Read this first: This instrument shows arithmetic, not advice. Real offers add fees, taxes and terms that vary by lender and place — verify the figures against your actual paperwork before deciding anything.