Rs 11 Lakh Lump Sum vs Rs 11,000 SIP: Which investment grows to Rs 6 crore faster at 12% return?

An SIP investment provides the opportunity to make an investment according to your earning cycle. SIPs in mutual funds can be daily, weekly, monthly, quarterly, semi-annually or annually. However, the monthly SIP is the most popular of them all.  When we talk about building a large corpus from SIP investment, the investment duration should be long. Some funds may give handsome returns in the short term, but they may underperform during market fluctuations. So the strategy of creating a large fund in the short term may backfire.

In a lump sum investment, one can invest a small or a large sum one time. This sum they may get in the form of an office bonus, a gift from a family member, a return from an investment, etc. However, when someone is aiming to create a corpus from a lump sum investment, they should also have a long investment horizon since the fund performance may go through various fluctuations in the short term.

The investor who gives ample time for their investments to grow will get more years for compound growth of their investments compared to short-term investors. Let's see two examples to understand it.

Creating a Rs 2 crore corpus from a Rs 5,000 monthly SIP investment at a 12 per cent annualised return is a huge task. But an investor can achieve this goal in 33 years with a total investment of Rs 19,80,000.

SIP investment- Rs 5,000 Duration- 33 years Total investment- Rs 19,80,000 Estimated capital gains- Rs 1,98,78,124  Estimated corpus- Rs 2,18,58,124

Here we are trying to create a corpus which is 50 times the investment. The expected rate of return in this case is also 12 per cent. An investor can achieve this goal in 35 years.

Lump sum investment- Rs 2,00,000 Duration- 35 years Estimated capital gains- Rs 19,80,000 Estimated corpus- Rs 1,05,59,924 In both cases, you can see that the corpus created is many times higher than the investment. It happens because the longer duration leads to higher compounding of investments. 

Here, we will calculate at a 12 per cent annualised return and will see which route will be faster to get a Rs 6 crore corpus.

At a 12 per cent return, it will take approximately 35 years to create a Rs 6 crore corpus. In 35 years, the total investment will be Rs 46,20,000, estimated capital gains will be Rs 5,59,99,142, and the estimated corpus will be Rs 6,06,19,142.  SIP investment- Rs 11,000 Duration- 35 years Total investment- Rs 46,20,000 Estimated capital gains- Rs 5,59,99,142  Estimated corpus- Rs 6,06,19,142 Rs 6 crore corpus from Rs 11 lakh lump sum

It will take a little over 35 years to reach a Rs 6 crore corpus target from an Rs 11 lakh lump sum investment. In 36 years, estimated capital gains will be Rs 6,39,49,131, and the estimated corpus will be Rs 6,50,49,131. 

Lump sum investment- Rs 11,00,000 Duration- 36 years Estimated capital gains- Rs 6,39,49,131 Estimated corpus- Rs 6,50,49,131

The SIP route is a faster route to get a Rs 6 crore corpus. But the lump sum investment is producing higher capital gains with a lower investment with 1 extra year of compound growth.