Calculators 7 min read
EMI and SIP maths: where the money actually goes
A loan EMI and a SIP both involve regular payments, but they run in opposite directions. In a loan, interest is charged on the outstanding balance and you pay it. In a SIP, returns compound on the accumulated corpus and work for you.
The formulas are not magic, and understanding them makes it easier to compare offers without being swayed by a single monthly figure.
The EMI formula
EMI = P × r × (1 + r)^n ÷ ((1 + r)^n − 1), where P is principal, r is the monthly interest rate (annual rate ÷ 12 ÷ 100) and n is the number of monthly instalments.
A longer tenure lowers the EMI but increases total interest, because the balance stays outstanding for longer. That trade-off is the main decision when comparing loan offers.
Illustrative loan
Principal: ₹5,00,000 Annual rate: 10% → monthly r = 0.008333… Tenure: 60 months EMI: approximately ₹10,624 Total repaid: approximately ₹6,37,400
Why early EMIs are mostly interest
Interest is calculated on the outstanding balance. In month one the balance is the full principal, so interest is at its highest. As the balance falls, the interest portion falls and the principal portion rises.
This is why prepaying early saves more interest than prepaying the same amount near the end of the loan. Check whether your lender charges a prepayment penalty before assuming the saving.
The SIP formula
Future value of a monthly SIP = P × (((1 + i)^n − 1) ÷ i) × (1 + i), where P is the monthly contribution, i is the assumed monthly return and n is the number of contributions. Some calculators use the contribution at the end of each month, which changes the last factor slightly.
A projection at 12% is an assumption, not a promise. Equity returns are volatile, and a bad sequence of returns near the end can change the outcome substantially. Use projections to compare scenarios, not to plan a guaranteed expense.
Illustrative SIP
Monthly contribution: ₹5,000 Assumed annual return: 12% → i = 0.01 Duration: 120 months Projected corpus: approximately ₹11,61,700 Total invested: ₹6,00,000
Comparing fairly
For loans, compare the effective annual rate including processing fees, not just the advertised rate. For investments, compare assumptions and costs, and remember that tax treatment differs by product and holding period.
A calculator gives you the arithmetic. It cannot tell you whether a loan or an investment is appropriate for your circumstances.
Frequently asked questions
Does the EMI calculator include processing fees?
Are SIP returns guaranteed?
Put it into practice
EMI Calculator
Monthly EMI plus a full amortisation schedule.
SIP Calculator
Project SIP growth from monthly amount and return.
Percentage Calculator
Percent of a number, percent share and percent change.
GST Calculator
Add or remove GST with the CGST/SGST breakdown.