The simple math of compounding
A one-time investment grows by the compound interest formula: A = P × (1 + r)ⁿ, where P is your investment, r the yearly return and n the number of years. The output looks unremarkable early on and absurd later — that is the nature of compounding, not a calculation error.
₹1 lakh at 12% becomes about ₹1.76 lakh in 5 years, ₹3.11 lakh in 10 years, ₹9.65 lakh in 20 years and ₹29.96 lakh in 30 years. The last decade alone adds more than the first two combined. Time in the market is the whole game.
Lumpsum or SIP — what if you have the money today?
Mathematically, investing a lump sum immediately beats spreading it out whenever markets rise — which they do more years than not. Historically, lumpsum investing has beaten a 12-month staggered entry roughly two times out of three.
But the math assumes you won't panic. If a 20% crash the month after you invest would make you sell, stagger the entry over 6–12 months (an STP — Systematic Transfer Plan — from a liquid fund automates this). The best plan is the one you can actually hold through a bad year.
Using this calculator honestly
Three habits make projections useful instead of misleading:
- Use realistic returns: 11–13% for long-term equity index funds, 7–8% for debt, 6–7% for FDs. If your plan only works at 15%+, it isn't a plan.
- Think in post-inflation terms for long horizons: a 12% return with 6% inflation roughly halves to 6% in purchasing power — enter 6% to see your corpus in today's rupees.
- Remember taxes: equity gains above ₹1.25 lakh a year are taxed at 12.5% on redemption (current rules), so your spendable amount is a little below the headline figure.
Frequently asked questions
›Is lumpsum better than SIP?
If you already have the money, investing it at once has historically won about two-thirds of the time, because markets rise more often than they fall. SIP wins psychologically — it averages your entry and removes the regret of bad timing. Many investors compromise by staggering a lump sum over 6–12 months.
›Where should I invest a lumpsum amount?
It depends on the horizon: under 3 years, FDs or debt funds; 3–5 years, hybrid or conservative allocation; 5+ years, equity funds make sense for money you can leave untouched. Park the amount in a liquid fund first if you plan a staggered entry. This is general information, not personal advice.
›What return should I assume for mutual funds?
Broad Indian equity index funds have averaged around 11–13% annually over long periods, with individual years ranging from roughly −25% to +75%. Using 12% for equity and 7% for debt keeps projections honest. No fund's past return is a promise.
›How is a lumpsum investment taxed?
For equity funds, gains on units held over a year are long-term and taxed at 12.5% above ₹1.25 lakh of gains per financial year; shorter holdings are taxed at 20% (current rules). Debt fund gains are taxed at your slab rate. Tax applies only when you redeem.
›What is CAGR and is it the same as this calculator's return?
Yes. CAGR (Compound Annual Growth Rate) is the single yearly rate that turns your starting amount into the final amount over the period — exactly the 'expected return' input here. When a fund reports 5-year CAGR of 14%, it means ₹1 grew as if it compounded at 14% every year.