Rs 10 lakh lump sum vs Rs 5,000 monthly SIP for 15 years: Which can build a bigger corpus in mutual fund investment?

A Systematic Investment Plan (SIP) allows investors to invest a fixed amount in a mutual fund at regular intervals, such as monthly, quarterly or annually. It promotes disciplined investing and helps spread investments over time.

A lump sum investment is a one-time investment where the entire amount is invested at the beginning. The investment remains in the market for the entire duration and benefits from compounding from day one.

In SIP, investments are made gradually over the investment period. In a lump sum investment, the entire amount is invested at once.

SIP reduces the impact of market timing because investments are spread across different market levels. Lump sum investments are more sensitive to market timing since a large amount is invested in one go.

SIPs benefit from rupee cost averaging, allowing investors to purchase more units when prices are low and fewer units when prices are high. This feature is not available in lump sum investing.

SIPs are generally suitable for salaried individuals and those with regular income. Lump sum investments are more suitable for investors who have a large amount available for immediate investment.

If markets perform well after investment, lump sum investing may generate higher returns because the entire amount remains invested for the full period. SIPs, however, offer a disciplined way to accumulate wealth over time.

Let us assume an investor puts Rs 10,00,000 in a mutual fund for 15 years and earns an average annual return of 12 per cent.

If you invest Rs 10 lakh for 15 years at an expected annual return of 12%, the investment could generate an estimated return of Rs 44,73,566. At maturity, the total corpus is projected to grow to around Rs 54,73,566, including the original investment amount.

Now let us assume an investor starts a Rs 5,000 monthly SIP and continues investing for 15 years at an assumed annual return of 12 per cent.

With a monthly SIP of Rs 5,000 for 15 years, your total investment would be Rs 9 lakh. Assuming an annual return of 12%, the investment could generate estimated returns of Rs 14,79,657, taking the total corpus to around Rs 23,79,657 at the end of the investment period.

Based on the above calculations, the Rs 10 lakh lump sum investment generates a corpus of Rs 54.73 lakh, while the Rs 5,000 monthly SIP generates a corpus of Rs 23.79 lakh in 15 years.