Mutual Fund Compare

SIP vs lumpsum: which is better for mutual funds?

Written and reviewed by Omm · Last reviewed · General information, not investment advice

Lumpsum means investing the whole amount at once. A SIP means investing a fixed amount every month. The question “which is better” depends on what you are comparing.

They are usually not alternatives

Most people do not choose between them, because they use whichever matches their cash flow. A salary arrives monthly, so a SIP fits. A bonus, an inheritance or the proceeds of a sale arrive as a lump sum.

Why you cannot compare them rupee for rupee

Take the calculators with an assumed 12% a year for 10 years. A SIP of ₹10,000 a month puts in ₹12,00,000 over the decade and grows to about ₹23,23,391. If you had ₹12,00,000 on day one and invested it as a lumpsum for the same 10 years at 12%, it would grow to about ₹37,27,000. The lumpsum looks far better, but only because all the money was invested for the whole 10 years, while the SIP’s later instalments were invested for much less time. The fair comparison is between a lumpsum and a SIP of the money you actually have at each date.

What each is good at

Lumpsum

  • Puts all your money to work immediately.
  • Gains the most if the market rises soon after.
  • Has the most risk of regret if the market falls just after you invest.

SIP

  • Averages your entry price over time (see rupee-cost averaging).
  • Needs no decision about when to start.
  • Keeps part of your money on the sidelines in the early months.

A practical way to choose

  1. If you earn monthly, use a SIP for your regular savings.
  2. If you have a large sum now, decide how much loss on paper you could live with. If a 20% fall in the first year would make you sell, stagger the money over a few months or put it in a lower-risk fund first.
  3. Match the fund to the time horizon, whichever way you invest. Equity funds are for money you will not need for many years.

Historical data can show how each would have done in the past, but it cannot say which will do better next. This is general information, not personal advice.

Frequently asked questions

Is SIP better than lumpsum?

Neither is better in every case. A lumpsum puts all the money to work from day one, which helps if the market rises afterwards and hurts if it falls. A SIP spreads the entry over many months. Which is better depends on market movement you cannot predict, and on when you have the money.

I have a large amount. Should I invest it all at once?

It depends on how much a fall would bother you. Some investors put the amount into a low-risk fund and move it to equity in instalments through a systematic transfer plan (STP), which is a way of staggering the entry.

Which gives higher returns, SIP or lumpsum?

Over long rising markets a lumpsum has usually done better because it was invested for longer. In falling or sideways markets a SIP can do better because it keeps buying cheaper. You cannot know in advance which kind of market is ahead.

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