SIP vs Lump Sum: Want To Be A Crorepati In 10 Years? SIP Or Lump Sum – Know Which Is The Best Way
SIP vs Lump Sum: In current times, mutual funds have emerged as a highly popular choice among investors, primarily due to attractive returns and flexibility. Today, there are various schemes available in the market catering to the income levels of every individual. However, before starting an investment, many face a common dilemma—should they invest small amounts regularly via SIP, or invest a large sum all at once (Lump Sum)?
Both modes of investment come with their own set of advantages and limitations. The decision should ideally be based on your financial goals and current situation. In this report, we will use a realistic example to see which method can potentially make you a ‘Crorepati’ or yield higher profits over a tenure of 10 years.
SIP vs Lump Sum: What is the Core Difference?
Systematic Investment Plan (SIP): This allows you to invest a fixed amount every month. It doesn’t put the burden of a large upfront payment on you and offers the benefit of ‘Rupee Cost Averaging’. Over the long term, even small amounts can grow into a massive corpus due to the power of compounding.
Lump Sum Investment: If you have a large amount of idle cash, investing it all at once is known as a lump sum investment. When the market is low, this type of investment can yield excellent future returns because your entire principal starts earning interest from day one.
The Battle of Rs 10 Lakh vs Rs 50,000: Who Wins?
Let’s look at a simple calculation. Suppose we invest for a period of 10 years, assuming an expected annual return of 12%. We will consider two scenarios:
- A monthly SIP of Rs 50,000.
- A one-time lump sum investment of Rs 10 Lakh.
Take a look at the table below:
| Details | SIP | Lump Sum |
|---|---|---|
| Investment Type | Rs 50,000 per month | Rs 10,00,000 one-time |
| Duration | 10 Years | 10 Years |
| Total Principal Invested | Rs 60,00,000 | Rs 10,00,000 |
| Estimated Returns (12%) | Rs 56,16,953 | Rs 21,05,848 |
| Total Value at Maturity | Rs 1,16,16,953 | Rs 31,05,848 |
Analyzing the Results
From the calculation above, it is clear that in terms of total corpus, the SIP route has generated significantly more wealth. By saving Rs 50,000 every month for 10 years, your total invested principal becomes Rs 60 Lakh, which with interest grows to over Rs 1.16 Crore. Essentially, the SIP route here offers you the opportunity to become a ‘Crorepati’.
On the other hand, the Rs 10 Lakh lump sum investment grew to approximately Rs 31 Lakh in 10 years. While the total final amount is lower, it is worth noting that the initial Rs 10 Lakh has more than tripled on its own.
Which One is Right for You?
According to financial experts, the decision depends on your source of funds:
- If you have a regular monthly income and wish to build a large corpus over the long term, SIP is the best option. It helps maintain financial discipline.
- If you suddenly receive a bonus or inherit money and have a large sum at hand, investing it as a Lump Sum might be a wise decision.
It is crucial to assess your risk appetite and financial goals before investing. Mutual fund returns are subject to market fluctuations.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Mutual Fund investments are subject to market risks. Please consult a SEBI registered financial advisor and read all related documents carefully before investing.
