How does an SIP calculate compounding returns?

A Systematic Investment Plan (SIP) calculates compounding returns using a monthly compounding annuity formula: FV = P × [((1 + i)^n - 1) / i] × (1 + i), where each monthly installment earns returns that are reinvested to generate exponential wealth growth over time through rupee cost averaging.

What is a Step-Up SIP and why should I enable it?

A Step-Up SIP automatically escalates your monthly contribution by a chosen percentage (e.g. 10%) or fixed rupee amount at the beginning of each 12-month cycle. Enabling Step-Up aligns your investments with annual salary increments and can more than double your final corpus compared to a static SIP.

How are Mutual Fund SIP returns taxed under Budget 2024/2026?

Under amended Section 112A of the Indian Income Tax Act, equity mutual fund units held for more than 12 months are subject to Long-Term Capital Gains (LTCG) tax at a flat rate of 12.5% on aggregate profits exceeding the ₹1,25,000 annual statutory exemption. Units redeemed within 12 months incur Short-Term Capital Gains (STCG) tax at 20.0% under Section 111A.

What is the impact of 6% inflation on long-term wealth?

Inflation steadily reduces real purchasing power over time. At an average 6.0% annual inflation rate, a nominal corpus of ₹1 Crore in 20 years will have the equivalent purchasing power of approximately ₹31.18 Lakh in today's money. Factoring in inflation ensures realistic financial and retirement target planning.

2026 High-Precision Quantitative Compounding Engine

Algorithmic Wealth Compounding & Real Tax Engine

Model forward step-up SIPs, solve reverse targets, factor statutory LTCG 12.5% taxation (Section 112A), and uncover true future purchasing power adjusted for inflation.

1-Click Presets:

Forward SIP Parameters

Compute cumulative future valuation

FORWARD

Monthly Investment

₹

₹500 ₹2.5 Lakh ₹5.0 Lakh

Expected Return Rate (CAGR)

% p.a.

1% (Debt) 12% (Index/Large Cap) 30% (High Beta)

Investment Time Horizon

Years

1 Year 15 Years 40 Years

Annual Step-Up Strategy Disabled (0%)

Budget 2026 LTCG Tax 12.5% over ₹1.25L

Real Inflation Adj. 6.0% Purchasing Power

Direct Mutual Funds @ 0% Commission

Save up to 1.5% extra every year in Direct Plans

Open Account

Projected Gross Future Corpus

₹1,26,98,954

WEALTH MULTIPLIER 2.82x Capital

Net In-Hand (Post-12.5% LTCG) ₹1,16,84,335 After ₹1.25L annual exemption

Real Purchasing Power Today (6% Infl.) ₹52,98,820 Equivalent lifestyle value today

Total Invested ₹45,00,000 35.4%

Est. Wealth Gain ₹81,98,954 +182.2%

Est. LTCG Tax ₹10,14,619 @ 12.5%

Visual Breakdown & Compounding Trajectory

Year-by-Year Wealth Amortization Schedule

Detailed yearly capital deployment, gains velocity, and year-end valuation

Year	Monthly SIP	Yearly Deposit	Cumulative Capital	Cumulative Profit	Year-End Corpus

The Mathematics of Rupee Cost Averaging and Compound Velocity

Systematic Investment Planning (SIP) functions as a disciplined financial vehicle that harnesses two foundational mathematical phenomena: Rupee Cost Averaging (RCA) and Exponential Compound Frequency. When equity markets experience volatility, your fixed monthly installment automatically acquires more mutual fund units at lower Net Asset Values (NAVs). Conversely, when markets rally, fewer units are purchased at higher prices, systematically compressing the weighted average acquisition cost without requiring speculative market timing.

Standard SIP Future Value Formula Monthly Compounded Annuity

FV = P × [ ( (1 + i)ⁿ - 1 ) / i ] × (1 + i)

FV = Future Value (Maturity Amount)

P = Monthly Installment Amount

i = Monthly Rate of Return (Annual CAGR / 12)

n = Total Number of Months (Years × 12)

Budget 2024 / 2026 Mutual Fund Tax Guidelines (Section 112A Explained)

Under the revised tax framework introduced by the Ministry of Finance, the taxation of equity mutual funds is governed by amended provisions of the Indian Income Tax Act:

Long-Term Capital Gains (LTCG - Section 112A)

Units held for more than 12 months are categorized as long-term assets. Gains up to ₹1,25,000 per financial year are 100% tax-free (statutory exemption). Any capital gains exceeding ₹1.25 Lakh are taxed at a flat rate of 12.5% without indexation benefits.

Short-Term Capital Gains (STCG - Section 111A)

Units redeemed within 12 months or less attract Short-Term Capital Gains tax at a flat rate of 20.0% (increased from 15% in recent fiscal updates).

Tax-Saving Solutions

💡 Investing via ELSS (Equity Linked Savings Scheme) qualifies for deduction under Section 80C up to ₹1.5 Lakh with a 3-year lock-in period.

How to Calculate Real Post-Tax Wealth (4-Step Guide)

Follow this step-by-step methodology to compute compounding future value with dynamic annual step-up and Budget 2026 capital gains tax.

Set Monthly Contribution

Use the slider or text box to input monthly investment in ₹.

Select Expected Return (CAGR)

Choose expected annual rate, typically 12%–15% for Indian equities.

Choose Investment Horizon

Select tenure in years to visualize compounding velocity.

Inspect Net Post-Tax Wealth

Toggle Step-Up, Inflation, and 12.5% LTCG tax to view real in-hand corpus.

VridhiSIP Pro - Comprehensive Wealth Simulation