SIP vs Lump Sum: Rs 20 lakh investment in 15, 20 years; know which can give higher return in long term

SIP vs Lump Sum: Mutual fund investors can invest in a scheme through a systematic investment plan (SIP) or lump sum. While they don't need to time the market in an SIP investment, they need to assess market situations before making a lump sum investment. However, both methods can give stable returns in the long term.

ZeeBiz WebTeam | Jan 21, 2025, 04:20 PM IST

SIP vs Lump Sum: Should you invest in a mutual fund systematically through a Systematic Investment Plan (SIP) or lump sum? This is a problem many investors face when they have a large amount. In an SIP investment, an investor invests periodically. The investment cycle can be daily, weekly, monthly, etc., while in a lump sum, they need to invest the entire amount in one go. Since one purchases net asset value (NAV) units at different prices, one doesn't need to time the market for making an SIP investment. However, when they make a lump sum investment, they need to see if the market is going through a bull or bear phase. Know more about both types of investments, and which of the 2—SIP or lump sum—can generate a higher maturity value if one invests a total of Rs 20 lakh in 15 and 20 years in each of them. 
Photos: Unsplash/Pixabay

(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)

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What is a SIP?

What is a SIP?

It's a method of investing in an equity, hybrid, or debt mutual fund scheme. In an SIP investment, a mutual fund investor invests a fixed amount at a fixed interval. The investment cycle can be daily, weekly, monthly, quarterly, half-yearly, or yearly. 

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How SIP investment works

How SIP investment works

When an investor starts an SIP, they invest a fixed amount. From that amount, they purchase net asset value (NAV) units of a mutual fund scheme. Since the price of units changes every investment cycle, they buy NAVs at different prices. This difference of units forms the basis of capital gains in SIP investment.

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Minimum SIP investment amount

Minimum SIP investment amount

An investor can start with a Rs 100 investment, but most mutual fund houses have the minimum SIP investment of Rs 500.

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Benefit of compounding in SIP

Benefit of compounding in SIP

Since the investor buys NAVs at different rates, they earn because of the difference in unit prices. The longer one stays in the investment, the more this difference is, and the more will be compounding. 

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Step up SIP

Step up SIP

One can stop or restart their SIP any time. They can also increase or decrease the amount. If they want, they can also opt for a step up SIP, where they can systematically increase their SIP amount every six months or year. This type of SIP is known as a step up SIP.

 

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What is lump sum investment in mutual fund?

What is lump sum investment in mutual fund?

In a lump sum investment, an investor invests the entire amount in one go. It means they buy all mutual fund units at the same price, unlike in an SIP, where they purchase it at different prices. As time passes, the price of the NAV increases, and lump sum investors get a return. If the NAV price goes down, the investor suffers losses. 

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What's right time for lump sum investment? 

What's right time for lump sum investment? 

Lump sum investment is not good when the market is bullish. It's suitable when the market is down. But one doesn't know if a bullish market will be more bullish or if a bearish market will go further down. So, a lump sum investment can be done through due diligence. 

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Does lump sum investment provide compound returns?

Does lump sum investment provide compound returns?

As the price of units increases, the value of the lump sum investment rises, and it provides compound growth. 

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What is minimum lump sum investment? 

What is minimum lump sum investment? 

The minimum lump sum investment in some mutual fund schemes is Rs 100. But it can be Rs 500, Rs 510, Rs 1,000, and Rs 5,000.

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SIP vs lump sum calculation 

SIP vs lump sum calculation 

We will take the example of a Rs 20 lakh investment in 15 years. As far as the monthly SIP investment is concerned, it will be Rs 11,111. We will take 12 per cent as the annualised return in each case.
We will also calculate it for 20 years. In this case, while the lump sum amount will remain at Rs 20 lakh, the monthly SIP investment will be Rs 8,333.

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Return from lump sum investment in 15 years

Return from lump sum investment in 15 years

At a 12 per cent annualised return, long-term capital gains will be Rs 89,47,132, and the estimated amount will be Rs 1,09,47,132.

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Return from Rs 11,111 monthly SIP investment in 15 years

Return from Rs 11,111 monthly SIP investment in 15 years

At a 12 per cent annualised, long-term capital gains will be Rs 36,06,364, and the estimated amount will be Rs 56,06,344.

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Return from lump sum investment in 20 years

Return from lump sum investment in 20 years

In 20 years, long-term capital gains will be Rs 1,72,92,586, and the estimated amount will be Rs 1,92,92,586.

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Return from Rs 8,333 monthly SIP investment in 20 years

Return from Rs 8,333 monthly SIP investment in 20 years

Here, long-term capital gains will be Rs 63,25,980, and the estimated amount will be Rs 83,25,900.

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Why lump sum capital gains are higher than SIP gains

Why lump sum capital gains are higher than SIP gains

The reason is that, in a lump sum investment, we are investing Rs 20 lakh in one go and getting compound growth on that. In the SIP investment, investments are spread out in 15 and 20 years, respectively, and the returns are based on monthly investments.

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