SIP vs lump sum returns: Rs 5,000 monthly SIP or Rs 5 lakh investment - Which wins in 20 years? See calculations

SIP vs lump sum returns: Reena and Meena are two friends who share one common objective and vision of accumulating wealth over time, specifically over 20 years. Whilst Reena wants to use the Systematic Investment Plan, where every month she puts in Rs 5,000 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 20 years. Let’s calculate and find out who has more of an advantage.

What is 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.

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.

SIP vs lump sum investment

Investment Timing: SIP spreads investments over time, while a lump sum invests the entire amount at once.

Market Risk: SIP may reduce market timing risk due to rupee-cost averaging, whereas a lump sum is fully exposed to market risk.

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.

The investment amount in 20 years will be Rs 12,00,000, the estimated capital gains could be Rs 37,95,740, and the total estimated corpus in 20 years could be Rs 49,95,740.

Lump sum investment conditions

The investment amount in 20 years will be Rs 5,00,000, the estimated capital gains could be Rs 43,23,147, and the total estimated corpus in 20 years could be Rs 48,23,147.

(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.)