A breakdown of how Future Value works when you combine a lump sum with annual top-ups.
1. Two Components, One Formula
Your future value has two parts: (a) your starting lump sum compounding for the full duration, and (b) each annual addition compounding from the year you add it until the end. The combined formula:
FV = P × (1+r)n + PMT × [(1+r)n − 1] / r
The first term is your lump sum's compound growth. The second is the closed-form sum of all the annual additions and their compounded growth (ordinary annuity — additions made at year-end).
2. Why the Split Matters
The Results Summary shows the FV of your principal and the FV of your additions separately. This makes the trade-off visible: a small starting amount with consistent yearly contributions can outpace a much larger lump sum that just sits. Compounding rewards both patience and consistency.
3. Tax on Gains
This calculator applies a flat 12.5% LTCG rate to the total gain (Total FV − Total Invested). This matches India's long-term capital gains tax on equity and equity-oriented mutual funds:
Tax = (FV − Total Invested) × 12.5%
For debt funds (post-April 2023) and FDs, gains are taxed at your slab rate, typically higher. Consult a tax advisor for your specific situation.
4. Real Return Rate (Fisher Equation)
Nominal return doesn't account for inflation. The Real Return Rate shows what your purchasing power actually grew at:
Real Return = (1 + nominal) ÷ (1 + inflation) − 1
At 12% nominal and 6% inflation, real return is about 5.66%.
5. Doubling Time
How long for a lump sum to double at this rate (ignoring additions):
Doubling Time = ln(2) ÷ ln(1 + r)
At 12%, money doubles in about 6.12 years. This applies only to the lump-sum portion — your annual additions don't each have the full tenure to double, so total wealth multiplier will be lower than 2n/doubling time.
Caveats & Disclaimer
Returns are illustrative. Mutual fund investments are subject to market risk; past performance does not guarantee future results. The calculator assumes a constant annual return, which differs from real-world MF performance that varies year to year. Annual additions are modelled as a single year-end contribution (ordinary annuity) — monthly SIPs would deliver slightly more due to mid-year compounding.
