SIP, FD and Loan Interest Explained with Simple Examples
By the Docly team · Updated October 22, 2026
Interest decides how fast savings grow and how much a loan really costs. The ideas are simple, but the numbers can surprise you. Here are four worked examples you can reproduce with the Docly calculators. The figures are illustrations, not promises, and real products have fees, taxes and changing rates.
1. Compound interest: interest on interest
With simple interest you earn only on the original amount. With compound interest, earlier interest is added to the balance and also earns interest. The formula is A = P × (1 + r/n)nt, where P is the amount invested, r the yearly rate, n how many times a year interest is added, and t the years.
2. Fixed deposit example
Suppose you put ₹1,00,000 in a fixed deposit at 7% a year for 5 years. Simple interest would give ₹35,000, a total of ₹1,35,000. If interest is compounded quarterly, the deposit grows to about ₹1,41,478, which is ₹41,478 of interest. Use the FD & RD Calculator to change the amount, rate and compounding. Banks may round differently and may deduct tax.
3. SIP example
A Systematic Investment Plan invests a fixed amount every month. If you invest ₹5,000 a month for 10 years, you put in ₹6,00,000 in total. If the investment earned 12% a year, compounded monthly, the final value would be about ₹11,61,695. Real market returns go up and down and are not guaranteed, so test lower rates too. Try this in the SIP Calculator, and add a yearly step-up to see how a rising investment changes the result.
4. Loan EMI example
An EMI is a fixed monthly payment that covers interest and part of the principal. For a loan of ₹5,00,000 at 8.5% a year over 5 years, the EMI is about ₹10,258.27 and the total interest is about ₹1,15,496. In the early months most of each payment is interest, and the principal share grows over time.
Extra payments save interest
If you add ₹2,000 a month to that same loan, it is repaid in about 49 months instead of 60, and the interest falls to about ₹92,174, a saving of roughly ₹23,322. Check whether your lender charges a fee for early repayment. The Loan Calculator and the Mortgage Calculator both include an extra payment option.
Practical tips
- Compare the effective annual yield of deposits, not just the quoted rate.
- A longer loan term lowers the monthly payment but raises total interest.
- Start investing early. Time has a bigger effect on compounding than the exact rate.
- Always read the fees, taxes and conditions of any financial product.
This guide is for general information. It is not financial, legal or professional advice.