SIP vs Lump Sum Investment: To find out which could generate a higher corpus, we took a certain amount for the comparison and calculations.
The amount may differ, but the total investment is nearly the same. Which makes it easy for you to make a firm decision. For instance:
Monika and Meena are two friends who share one common objective and vision of accumulating wealth over time, specifically over 15 years. Whilst Monika wants to use the Systematic Investment Plan, where every month she puts in Rs 3,000 through mutual fund investment, Meena, on the other hand, wants to invest a lump sum of Rs 5 lakh all at once. Now, both of these individuals want to see who has more at the end of 15 years. Let's calculate and find out who has more of an advantage.
What is a Lump Sum Investment?
A lump sum investment is a one-time investment where the entire amount is paid upfront at the start of the investment period.
What is a SIP?
A Systematic Investment Plan (SIP) is a popular investment option that allows investors to contribute a fixed amount to a mutual fund at regular intervals, such as monthly, quarterly, or yearly.
Read more: Small SIP, Big Returns: Rs 2,000 monthly investment that turned Rs 3 cr - This mutual fund made it possible
SIP vs lump sum investment
Investment Timing: SIP spreads investments over time, while a lump sum invests the entire amount at once.
Suitability: SIP is considered for people with a steady income source, and lump sum investors should have a large amount to invest at once.
Potential Returns: Lump sum investments may have a high potential to grow in case the markets perform well; SIPs facilitate disciplined growth.
Flexibility: SIP allows smaller, manageable contributions over time; a lump sum requires a large upfront commitment.
SIP vs Lump Sum Investment: SIP Investment Conditions
- SIP monthly investment: Rs 3000
- Assumed annualised return: 12 per cent annually
- Investment period: 15 years
SIP calculation: How much can you get in 15 years with Rs 3000 monthly investment?
The investment amount in 15 years will be Rs 5,40,000, the estimated capital gains could be Rs 9,73,728, and the total estimated corpus in 15 years could be Rs 15,13,728.
SIP vs Lump Sum Investment: Lump sum investment conditions
- Lump sum investment: Rs 5 lakh
- Assumed annualised return: 12 per cent annually
- Investment period: 15 years
Lump sum calculation: How much can you get in 15 years with Rs 5 lakh lump sum investment?
The investment amount in 15 years will be Rs 5,00,000, the estimated capital gains could be Rs 22,36,783, and the total estimated corpus in 15 years could be Rs 27,36,783.
SIP vs Lump Sum Investment: Which could generate a higher corpus in 15 years?
Well, it is quite clear from the above calculations that a lump sum investment could generate a higher corpus. The total investment amount is nearly the same, but the returns on a lump sum investment are much higher than those on a monthly investment.
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(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money related decisions.)
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