Debunking SIP Calculators: Why Real Returns Differ from Estimates

Systematic Investment Plans (SIPs) have become one of the most preferred ways to invest in mutual funds. Mutual Funds allow you to invest a fixed amount regularly while benefiting from rupee-cost averaging, making it easier to stay disciplined in your investment journey.

But here’s a question: Have you ever used an online SIP calculator to estimate how much wealth you’ll create over time? If yes, how sure are you that the numbers shown are exactly what you’ll get when your investment period ends?

The truth is, SIP calculators are built on assumptions-mainly consistent growth and fixed returns-which don’t reflect how markets actually behave. The stock market is unpredictable, and returns vary from month to month. In this blog, we’ll break down how SIP calculators really work, how their method differs from the way the market generates returns, and why the results should be viewed as an approximate projection, not a guaranteed outcome.

What is an SIP Calculator?

A SIP Calculator is a tool that helps investors estimate the potential returns on their mutual fund investments made through Systematic Investment Plans (SIPs). SIPs involve investing a fixed sum regularly, typically monthly, in mutual funds. This method has gained popularity among millennials as a convenient way to build wealth over time.

The calculator provides an approximate idea of the maturity amount an investor can expect from their monthly SIP, based on projected annual returns. However, the actual returns can vary due to factors like the performance of the mutual fund, exit loads, and expense ratios, which are not factored into the calculator's estimates.

Debunking the SIP Calculator

We will understand this with some numbers. Check out this table on SIP calculations for a year with monthly Rs 10,000 investments and 10 per cent growth per year. Also, we have calculated the rate at which the investment grows each month by dividing the annual rate by 12 months. This implies that growth is equivalent to 0.83 per cent per month. The next columns show the total invested amounts after growth, the growth amount, and the total amount with growth.

The above calculation is exactly the same as the online SIP calculators.

Now the twist comes here, the growth column is marked red purposefully to show you that here we have assumed a growth rate of 0.83 per cent each time. The question arises here: Is the market or the mutual fund giving equal returns each month?

The answer is “No” because in stock market does not offer the same returns each time; it is completely unpredictable.

Let's analyse a real-time scenario using Nifty 50 returns of the years 2022, 2023 & 2024.

In the given table below, the growth rate (green column) we have on a monthly basis is the actual returns logged by the Nifty 50 index in the year 2022, and this is what the real-time returns look like – these are in fluctuating terms. When you get returns, this is how it is calculated.

Now, analysing both tables above, you can see the difference between the assumption and the real returns in SIP.

Here’s another interesting observation. When we compare the month-by-month numbers for both cases over the last year, the total investment value turns out to be slightly more than Rs 1.26 lakh, with a marginal difference of Rs 638. 

What’s even more surprising is that while we assumed a 10 per cent annual return while calculating the SIP amount, the actual annualised Nifty yield for 2022 was only 4.33 per cent — yet the final investment value comes out almost the same. This raises an important question for investors: Does this mean SIP calculators are misleading or even a fraud?

If we talk about real-world returns, comparing them with SIP calculator returns will show differences. There is no method in the world to accurately predict future returns. Therefore, while using SIP calculators, you must assume consistent returns. For example, if the calculator shows annual returns of 10 per cent, it means a monthly return of 0.83 per cent. Neither you nor any investor can predict monthly returns accurately.

To further understand how SIP calculators differ from real market-based calculations, let’s examine how the same Rs 10,000 monthly SIP would have performed using actual Nifty 50 monthly returns during 2023 and 2024.

Let's have a look at the year 2023:

Here, even though some months saw negative growth, the overall annual growth was strong due to the last two months giving high positive returns. The final SIP value stood at Rs 1,40,005 against a total investment of Rs 1,20,000 — resulting in a gain of Rs 20,005.

If you used an SIP calculator assuming 10 per cent growth, your expected maturity would be around Rs 1,26,703 (as seen in the first example). The actual market-linked return is much higher here because 2023 witnessed stronger overall market performance.

Let's have a look at the year 2024:

Despite a modest annual growth rate of 8.75 per cent, the SIP maturity for 2024 was Rs 1,21,400, less than what a 10 per cent annual SIP calculator would have predicted (Rs 1,26,703). Even though the annual return was 8.75 per cent — about 1.25 per cent lower than the base case of 10 per cent — the total investment difference was Rs 5,303. 

This large difference occurred because the last three months of the year recorded weaker returns, which dragged the overall SIP value down. If those months had shown positive performance, the maturity value would have been higher than the base case (10 per cent). This shows that SIP returns depend not only on the average annual rate but on how higher and lower returns are distributed throughout the year — their timing directly influences the final investment growth.

Conclusion

SIP calculators provide useful estimates but cannot accurately predict future returns due to market volatility. Long-term investments may align more closely with projections, but investors must recognise the risks and uncertainties in shorter investment periods.

The total investment growth in any year will depend on how monthly returns are distributed. If higher returns occur during the early months, only a few SIP instalments benefit, resulting in a limited overall impact. However, if stronger returns come in the later months of the year, the total investment grows significantly because the earlier SIP contributions have already accumulated and can fully utilise the compounding effect. Therefore, the timing and pattern of monthly returns play a crucial role in shaping the actual SIP outcome, which SIP calculators cannot capture.