What your SIP calculator isn't telling you

Type ₹25,000 a month, 12% returns, 15 years into any SIP calculator in India. You will get ₹1.26 crore.

That number is not wrong. It is just not yours.

A SIP calculator answers one question: what does this much money, growing at this rate, for this long, become? It answers it correctly. It simply stops three questions short of the one you actually care about — how much wealth you end up keeping, and what that wealth will buy.

Three things your SIP calculator doesn't show

1. Fund costs reduce the return that compounds in your account.
2. Capital gains tax reduces the proceeds you retain when you redeem.
3. Inflation reduces what those proceeds can buy.

Only the first two take money. The third changes what the money is worth. Calculators routinely show none of them.

These effects are sequential, not independent. A lower corpus produces a smaller capital gain, which produces a smaller tax bill. Each step below is computed on the output of the one before it.

The starting number

A SIP of ₹25,000 a month for 15 years at an assumed 12% annual return, compounded monthly, with each instalment made at the start of the month:

• Total invested: ₹45,00,000
• Projected corpus: ₹1,26,14,400
• Gain: ₹81,14,400

This is the brochure number. Everything below comes out of it.

Timing matters, so let us fix it. Throughout this article, the SIP runs for exactly 180 instalments and the entire corpus is redeemed immediately after the final one. Changing that redemption date changes the tax — we return to this in the section on holding periods, and it turns out to be one of the few levers fully under your control.

1 — Fund costs

A mutual fund charges an annual fee called the Total Expense Ratio, or TER. It is never billed to you. It is deducted from the scheme's assets, and the NAV you see each day is already net of it. You never watch it leave, which is precisely why it is easy to ignore.

A regular plan of an actively managed equity fund typically charges between 1.5% and 2.25% a year.

For a simplified illustration, we model a 1.5% TER as reducing a 12% gross return to approximately 10.5%. In reality TER is charged continuously against assets rather than subtracted once from an annual return, so treat 10.5% as a planning approximation rather than an exact conversion.

At 10.5% instead of 12%:

• Projected corpus: ₹1,09,45,689
• Cost of the expense ratio: ₹16,68,711

A fee of 1.5% a year removed ₹16.69 lakh over fifteen years. That is what a percentage fee does to a compounding balance — the fee compounds alongside the money.

An assumption worth stating plainly. There are two ways to read "12%". If you mean the market returns 12% and your fund charges its fee against that, the calculation above holds. If you mean your fund's NAV itself grows 12% after all costs, then TER is already inside that figure and you should skip this step. We use the first reading, because that is how most people understand the number they type in. Under the second reading the corpus stays at ₹1.26 crore and the two stages below still apply.

2 — Capital gains tax (simplified illustration)

You owe nothing while the SIP runs. You owe it when you redeem.

Read this before the table. A SIP is not one investment — it is 180 separate purchases, each with its own date and cost. Actual tax is computed unit by unit, oldest units first under FIFO, with the holding period tested per instalment. The calculation below treats the whole corpus as a single long-term holding. That is a simplification. We quantify exactly how much it costs you at the end of this section.

For equity-oriented mutual funds held longer than twelve months, long-term capital gains are taxed at 12.5% under Section 112A, with no indexation benefit. A health and education cess of 4% applies on the tax. Short-term gains on equity-oriented funds fall under Section 111A at 20%.

The ₹1.25 lakh figure you have probably heard is not an exemption belonging to this investment. It is the annual threshold applied to your aggregate eligible long-term capital gains in a financial year — across every Section 112A asset you hold. If you also sold shares that year, you share the same ₹1.25 lakh across all of it.

You still cross a crore. Just barely, and ₹25 lakh below what the calculator promised.

How wrong is the simplification?

Worth knowing, rather than waving at.

Under our stated timing — redemption immediately after the 180th instalment — the final twelve instalments have been held for under a year, so their gains are short-term and taxed at 20% rather than 12.5%. Those instalments total ₹3,00,000 of contributions and have had almost no time to grow. Their combined gain is ₹17,622.

Computed properly, splitting long-term and short-term, the tax is ₹8,23,064. Our simplified figure was ₹8,21,690. The simplification understates the tax by ₹1,375 — about 0.017% of the bill.

So the table is a fair estimate for planning. It is not your tax return.

The threshold is annual, and that is the lever

Because ₹1.25 lakh applies per financial year, redeeming the entire corpus in one year uses it exactly once. Redeeming in tranches across several financial years gives you a fresh threshold each year.

Waiting twelve months after your final instalment before redeeming also moves every unit safely into long-term territory. Both levers cost nothing but planning, and no calculator will prompt you to use either.

3 — Inflation

This one takes nothing from your account. It changes what the account can buy.

At 6% average inflation over fifteen years, prices roughly 2.4x. Expressed in what it would buy today, your ₹1,01,24,000 is:

₹42,24,391.

That is not pessimism. It is the same arithmetic that made ₹42 lakh feel like a fortune in 2011 and ordinary now. If you are planning a goal fifteen years out — a house, a child's education, retirement — aim at what that goal will cost then, not what it costs today.

Four numbers, not one

This is the whole article in one table. Your calculator shows you the second row.

The part that is genuinely good news

Read that table upward.

You put in ₹45,00,000 of your own money, ₹25,000 at a time, without needing to be clever or lucky or early. You end up with ₹1,01,24,000 of wealth you actually retain. Your money more than doubled after every cost and every rupee of tax.

That is a strong outcome, and nothing here argues against SIPs. The argument is narrower: set your target against the honest number, not the brochure one. Someone planning for ₹1.26 crore and receiving ₹1.01 crore has a ₹25 lakh problem they discover on the day they can least afford to discover it.

If you want ₹1 crore of real, post-tax, in-today's-money wealth after fifteen years, you would need to invest roughly ₹59,000 a month under this simplified model — not ₹25,000. That is a hard number to look at. It is much easier to look at now than in fifteen years.

Three things you can do about it

Check your expense ratio. Direct plans hold the same portfolio, run by the same manager, without distributor commission built into the fee. The gap varies by scheme and category, so look up your own fund rather than trusting a rule of thumb.

For illustration, take a 0.65 percentage-point difference: a regular plan at 1.50% TER nets 10.50%, a direct plan at 0.85% TER nets 11.15%. On this same SIP, post-tax:

A difference of ₹5,99,622 — for choosing a different share class of the same fund.

Plan your redemption, not just your investment. Spread withdrawals across financial years for a fresh ₹1.25 lakh threshold each year, and let the final instalments cross twelve months before you sell.

Set goals in future rupees. Price what you are saving for at what it will cost when you buy it.

Run it on your own numbers

The SIP Calculator shows the projected corpus and the cost- and tax-adjusted figures together, because you should never see one without the other. The Goal Planner works backwards from a target, and the Future Expense Calculator tells you what that target should be.

Assumptions and sources

• SIP compounded monthly, instalments at the beginning of each month, 180 instalments, full redemption immediately after the final instalment. Beginning-of-month gives a slightly higher figure than end-of-month.
• 12% is an assumed nominal gross return, treated as the market return with TER charged against it. It is not a forecast or a guarantee.
• 1.5% TER is representative of a regular plan of an actively managed equity fund; 0.85% and the 0.65 percentage-point gap are illustrative, not universal. Check your own scheme's factsheet or the AMFI disclosure.
• 6% inflation is a long-run planning assumption, not a prediction.
• Equity LTCG: 12.5% on aggregate eligible gains above the ₹1.25 lakh annual threshold, Section 112A, no indexation. STCG under Section 111A at 20%. Health and education cess 4%. Surcharge, where applicable to your income, is not modelled. Rates per the Finance (No. 2) Act 2024, effective 23 July 2024, and unchanged for FY 2026-27.
• Tax figures are estimates under the stated simplifications. Actual liability depends on purchase and redemption dates, FIFO unit matching, and your other gains and losses in the year.

This article explains arithmetic. It is not investment advice and recommends no fund or scheme. Consult a qualified professional before acting.