SIP Maths: Why the Last Five Years Do the Heavy Lifting

A systematic investment plan is not one investment; it is a stack of them. The instalment you paid in year one has been compounding for the entire horizon, while the one you paid last month has barely started. Averaging that staircase is what the SIP formula does.

The consequence is that growth arrives late and unevenly. Take 5,000 a month at an assumed 11%. After ten years the corpus is roughly 1,088,000 on 600,000 invested — growth of 488,000. Push to fifteen years and it reaches about 2,510,000 on 900,000 invested. Half the extra corpus came from five extra years of contributions; the other half came from the earlier instalments finally compounding on a large base.

This is also why the emotional test of a SIP falls in the middle years, when the balance is large enough for a market drop to feel expensive but not yet large enough for compounding to dominate.

Some real-world context: rupee-cost averaging came out of dollar-cost averaging research from the 1940s, and its benefit was never about maximising returns. It was about removing the timing decision that causes most investors to underperform the funds they own.

The honest limitation is horizon. Over three years, a SIP into equity can easily finish below the amount invested. The formula projects growth; it does not promise it.