Mutual funds have become a popular choice for investors seeking higher returns than conventional savings instruments. They are easy to access, well-managed and appropriate for both one-time and recurring investments.
To build a corpus of Rs 1 crore, investors look at two main choices: investing through a lump sum or a Systematic Investment Plan (SIP). Both can contribute to wealth accumulation, but they work differently.
SIPs Vs Lump Sum
Mutual fund SIPs allow investors to invest a small amount at regular intervals, generally every month, instead of a huge sum at once. It could be a suitable choice for investors who want to save a small amount every month to build a sizable corpus over the years.
SIPs help in long-term wealth accumulation due to the power of compounding. For those who don’t want to worry about timing the market or volatility, SIPs could be a suitable option.
Investing a large amount of money at once in a mutual fund is known as a lump sum investment. This also grows your money over time, sometimes faster than SIPs during a booming market.
But a lump sum investment can also expose you to short-term volatility. It could be a better choice for investors with higher risk tolerance.
SIPs offer more flexibility, while lump sum investments may yield higher returns when invested during a market downturn. However, actual returns against investments in both instruments may vary due to multiple factors.
Rs 10,000 SIP Vs Rs 10 Lakh Lump Sum For Building Rs 1 Crore
Reaching the target of Rs 1 crore can be easily achieved through SIPs and a lump sum investment. Let’s see how you can achieve the target with a monthly SIP of Rs 10,000 and a lump sum investment of Rs 10 lakh. For this investment scenario, let’s assume a return rate of 12% per annum.
Lump Sum Investment
Target: Rs 1 crore
Lump Sum Investment: Rs 10,00,000
Expected Return Rate: 12% per annum
Time Period: 20 years
Estimated Returns: Rs 86,46,293
Total Value: Rs 96,46,293
SIP Investment Formula
Target: Rs 1 crore
Monthly Investment: Rs 10,000
Expected Return Rate: 12% per annum
Time Period: 20 years
Invested Amount: Rs 24,00,000
Estimated Returns: Rs 75,91,479
Total Value: Rs 99,91,479
As per the above calculation, you can reach the target of Rs 1 crore through both investment instruments in 20 years. However, the returns on investment in both SIP and lump sum schemes may vary significantly.
For instance, a total investment of Rs 24 lakh through SIPs may yield total returns of Rs 75.91 lakh. On the other hand, a lump sum investment of Rs 10 lakh may provide total returns of Rs 86.46 lakh over the same tenure.
The decision to choose between a lump sum and SIP should be finalized after evaluating your financial condition and risk appetite. Even the guidance of a financial expert may also help in minimising risks while maximising potential benefits.
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