Investing6 min read
Reading a SIP projection without fooling yourself
A projection is arithmetic on an assumption. Knowing which half is which is the difference between planning and hoping.
The formula is not the uncertainty
A SIP projection compounds each instalment for the months it remains invested. That part is exact — the same input always gives the same output, and any two calculators using the annuity-due convention will agree to the rupee.
The uncertainty sits entirely in one field: the expected annual return. Everything downstream inherits it. A projection is therefore best read as a conditional statement — 'if this rate holds on average, then this is the arithmetic' — rather than as a forecast.
Test the assumption before you trust the answer
Run your projection three times: at your assumed rate, two points below it, and two points above. If the three answers are close enough that your decision would not change, the plan is robust. If they are not, you are relying on the rate rather than on the saving.
A ₹20,000 monthly SIP over twenty years projects to roughly ₹1.5 crore at 10%, ₹2.0 crore at 12% and ₹2.6 crore at 14%. Same discipline, same money, a spread of over a crore. That spread is the honest range, not the middle figure.
Where the returns come from matters
In the early years almost the entire balance is your own contribution. Growth only overtakes contribution somewhere past the ten-year mark, and after that the curve steepens sharply. This is why stopping a SIP at year seven, when it looks unimpressive, forfeits the only part that was ever going to be interesting.
It is also why a step-up matters more than a higher assumed return. Raising the instalment 10% a year is within your control. The market's return is not.
What the projection deliberately ignores
Every SIP calculator, including ours, models a smooth rate. Real returns arrive unevenly, and the sequence matters — particularly near the end, when the balance is large and a bad year removes more in rupees than a good early year ever added.
Projections also exclude expense ratios, exit loads, and tax on redemption. Assume your realised return is meaningfully below the headline figure, and plan with the gap in mind.
What to take away
- The formula is certain; the assumed rate is not. Only one of them deserves your confidence.
- Run every projection at ±2 percentage points before making a decision on it.
- Growth overtakes contribution around year ten — the boring years are the entry fee.
- Headline projections ignore costs and tax. Your realised number will be lower.