What return rate should you assume?
There is no correct answer, only a defensible one. The rate you type into a calculator is the input the result is most sensitive to and the one people think about least. This page covers how to choose it by fund category and horizon — and the two-run test any plan should survive.
How much the assumption actually matters
Before picking a number, look at what it does. ₹5,000 a month for 20 years:
| Rate | Final value | Against 12% | Real value at 6% inflation |
|---|---|---|---|
| 8% | ₹29,64,736 | -41% | ₹9.24 L |
| 10% | ₹38,28,485 | -23% | ₹11.94 L |
| 11% | ₹43,67,865 | -13% | ₹13.62 L |
| 12% | ₹49,95,740 | — | ₹15.58 L |
| 13% | ₹57,27,596 | +15% | ₹17.86 L |
| 14% | ₹65,81,731 | +32% | ₹20.52 L |
Two points of return is roughly a 23% difference in the final figure over twenty years. That is why "just use 15%" is not a harmless optimism — it is the difference between a plan and a wish.
Reasonable assumptions by fund type
Modelling conventions rather than predictions. Nothing here is a forecast, and no category guarantees anything.
| Category | Typical assumption | Suits a horizon of |
|---|---|---|
| Large-cap / index equity | 10–12% | 7 years and up |
| Flexi-cap / multi-cap | 10–12% | 7 years and up |
| Mid and small-cap | 11–13%, far more volatile | 10 years and up |
| Hybrid / balanced advantage | 8–10% | 5 years and up |
| Debt — short duration | 6–7% | 1–3 years |
| Liquid / overnight | 5–6% | Under a year |
| PPF | Currently around 7.1%, revised quarterly | 15 years |
| Bank FD | Around 7%, before tax | Under 5 years |
Note that higher-return categories carry higher minimum horizons, and that is not a coincidence. A small-cap fund's 13% assumption is only meaningful if you can sit through a 50% drawdown without selling. If you cannot, your effective return is much lower than the category's.
Where 12% came from
12% is the default in nearly every Indian SIP calculator, including this one. It derives from long-run returns commonly cited for broad Indian equity indices over multi-decade periods, generally quoted in the 11–13% range on a total-return basis.
Three caveats worth carrying:
- Index returns are not fund returns. Expense ratios and tracking error remove 0.2% to 2% depending on the fund. If you want a net figure, subtract the expense ratio from the rate you enter.
- Long-run averages hide long dry spells. Indian equity has had multi-year periods of flat or negative returns inside those averages. A twenty-year average does not promise anything about any particular five years.
- Past periods are not a sample of the future. A high-growth developing economy with falling interest rates produced part of that history. Neither condition is guaranteed to persist.
So use 12% if you like, but hold it loosely.
The two-run test
Run every plan twice
Once at your assumption. Once three points lower.
If the goal still works at the lower figure, you have a plan with margin. If it only works at the higher one, you do not have a plan — you have a forecast you are depending on. The fix is more time, more money, or a smaller goal, in that order of preference.
This costs thirty seconds and is the single most useful habit in this entire guide.
Why the average matters less than you think
Every calculator here applies a constant rate. Real returns arrive in a sequence, and the sequence matters in a way the average cannot capture.
While you are accumulating, the order is largely irrelevant to the final value — the same set of returns in any order gets a lump sum to the same place. A SIP actually benefits mildly from early weakness, because more units are bought cheaply.
While you are withdrawing, the order is decisive. Poor returns in the first few years force you to sell units cheaply to fund living costs, and the shrunken base never fully recovers. This is sequence risk, and it is why the SWP calculator carries a warning that a constant-rate model cannot show it.
Questions people actually ask
Is 12% realistic for Indian equity funds?
It is the conventional long-run assumption and it is not unreasonable for a horizon of ten years or more. It is not a promise, and it is optimistic for anything shorter.
Model 10% as your base case and 12% as the good case, rather than the reverse. Plans built on the optimistic figure have no margin.
Should I use a lower rate for a shorter goal?
Yes, and change the instrument too. A three-year goal should not be in equity at all, so the question is not "what equity rate" but "what debt rate" — 6–7%.
Using a 12% equity assumption on a three-year horizon is the most common way people end up short at exactly the wrong moment.
Should I subtract the expense ratio from my assumed return?
If you want a net-of-cost projection, yes. A fund's published returns are already net of its expense ratio, but a category assumption drawn from index data is not.
Direct plans of index funds run around 0.1–0.3%; active regular plans can exceed 2%. Over twenty years, two percentage points is not a detail — check the table at the top of this page.
What about the returns a fund advertises?
Treat them as history, not guidance. SEBI requires the standard disclaimer for a reason: a fund's three-year number frequently reflects a favourable window for its style rather than durable skill, and the categories at the top of a trailing-return table rarely stay there.
Use category conventions for planning and leave fund selection to a SEBI-registered adviser.
Where these numbers come from
- NSE — Nifty 50 index — index construction and returns methodology
- AMFI — Indian mutual fund industry data and investor education
- SEBI — mutual fund regulation, adviser registration
- Reserve Bank of India — monetary policy framework, CPI data