What compounding actually does
Compounding means your returns start earning returns. In year one, only the money you put in grows. In year ten, a decade of accumulated gains is growing alongside it — which is why the value curve above bends upward instead of rising in a straight line. Albert Einstein probably never called it the eighth wonder of the world, but the arithmetic needs no endorsement: given enough time, the market's contribution to your corpus quietly overtakes your own.
For a one-time investment the formula is A = P × (1 + r/n)n×t — principal P growing at annual rate r, compounded n times a year for t years. For a monthly SIP the standard closed form is FV = P × [((1+i)n − 1) / i] × (1+i), where i is the monthly rate and n the number of instalments. This calculator simulates every month explicitly with those same conventions, which is what lets it also handle step-up SIPs and mixed SIP-plus-lumpsum plans.
Worked example: ₹10,000 a month at 12%
The classic illustration, at the Nifty's rough long-run return of 12% a year. Note how the last decade does most of the work:
| Period | Invested | Returns | Final value |
|---|---|---|---|
| 10 years | ₹12 L | +₹11.23 L | ₹23.23 L |
| 20 years | ₹24 L | +₹75.91 L | ₹99.91 L |
| 30 years | ₹36 L | +₹3.17 Cr | ₹3.53 Cr |
Over 30 years you put in ₹36 L, but compounding turns it into roughly ₹3.53 Cr — the returns are about 9× the money you actually invested. A one-time ₹1 L behaves the same way:
| Period | Invested | Returns | Final value |
|---|---|---|---|
| 10 years | ₹1 L | +₹2.3 L | ₹3.3 L |
| 20 years | ₹1 L | +₹9.89 L | ₹10.89 L |
| 30 years | ₹1 L | +₹34.95 L | ₹35.95 L |
The Rule of 72
A handy mental shortcut: divide 72 by your annual return to get the approximate doubling time. At 12% your money doubles about every 6 years — so a 30-year horizon holds five doublings, a 32× multiplication. At a fixed deposit's ~7% the doubling time stretches past 10 years, which is the whole argument for taking measured equity risk with long-term money.
SIP, lumpsum or both?
A lumpsum invested early compounds longest, so if the money already exists, time in the market usually beats waiting. A SIP wins on behaviour: it invests through highs and lows without asking your opinion, averages your purchase price, and matches how salaries actually arrive. The step-up slider models the realistic middle path — raising your SIP each year as your income grows. Most long-term investors end up using both: a SIP as the engine, lumpsums when bonuses or windfalls show up.
Honest assumptions
- Returns are pre-tax and ignore fund expense ratios and brokerage.
- Real markets do not deliver a smooth 12% — they lurch. The end value is a fair estimate; the path will be bumpier than the chart.
- The "today's money" toggle deflates the result at 6% a year, near the RBI's upper tolerance band for CPI inflation.
- Nothing here is investment advice — see the full disclaimer and how our stock analysis works.
Put the rate assumption to work
The biggest input in any compounding plan is the return you can actually earn. That is what the rest of StocksWizard is for: run the stock screener to find quality companies, check any of ~1,400 Indian stocks for a fair-value estimate and Buy/Hold/Sell verdict, or see how the pros position via superstar portfolios. Investing from abroad? Start with the NRI guide.
Frequently asked questions
How does this compound interest calculator work?
It simulates your investment month by month. Each monthly SIP instalment is added at the start of the month and the whole balance grows at the expected annual return divided by 12 — the same convention used by standard SIP calculators, matching the formula FV = P × [((1+i)^n − 1)/i] × (1+i). A one-time investment compounds from day one, and the yearly step-up raises the SIP amount every 12 months.
What annual return should I assume for Indian stocks?
Over long periods the Nifty 50 has historically delivered roughly 11–13% a year including dividends, which is why 12% is the common default. A conservative plan uses 10%, while bank fixed deposits are closer to 6–8%. Past returns do not guarantee future returns, so it is worth checking your plan at a lower rate too.
What is a step-up SIP?
A step-up (or top-up) SIP increases your monthly instalment by a fixed percentage every year — usually in line with salary growth. Even a 10% yearly step-up can add a substantial amount to the final corpus versus a flat SIP, because the larger later instalments still get years of compounding.
Does the calculator account for inflation and taxes?
Results are pre-tax by default. Tick the "today's money" option to see the final value deflated at 6% a year — an estimate of its purchasing power today. Capital gains tax, fund expense ratios and brokerage are not modelled, so treat the output as an estimate, not a promise.
What is the Rule of 72?
Divide 72 by your annual return to estimate how many years your money takes to double. At 12% a year that is about 6 years; at 8% about 9 years. It is a quick mental check, and the calculator shows the exact figure for your inputs.
Is this calculator free to use?
Yes — like everything on StocksWizard, the compounding calculator is free with no login and no paywall, alongside fair-value estimates, Buy/Hold/Sell verdicts and the stock screener for ~1,400 Indian stocks.