Rs 3,000 SIP Vs Rs 3 Lakh Lump Sum: Which One Is Better?

In recent years, mutual funds have emerged as a popular investment option among Indian investors. With a wide range of plans on offer, mutual fund schemes provide investors across the spectrum an opportunity to systematically build wealth. Due to the power of compounding, mutual funds offer comparatively higher returns vis-a-vis traditional instruments like fixed deposits.  

Investors can choose a systematic investment plan (SIP) or make a lump sum investment. SIP schemes allow investors to build wealth by investing small amounts at regular intervals. On the other hand, lump sum investments may fetch higher returns as you earn interest on the entire amount from the first day.

When it comes to long-term investment planning, many investors often grapple with a simple question: Is it wiser to invest a lump sum amount or to opt for an SIP scheme?

Each instrument has its own benefits and the best option ultimately depends on your financial objectives, risk tolerance and how long you plan to stay invested.

Let’s see how a monthly SIP of Rs 3,000 and a lump sum investment of Rs 3 lakh would grow over the years.

Putting Rs 3 lakh into the market all at once exposes your entire investment to current market trends. If the market happens to be at a high and declines shortly after, you might see an immediate dip in your portfolio’s value. However, entering the market during a downturn can work in your favour, as you could profit from future recoveries and growth.

By investing Rs 3,000 each month through an SIP, you distribute your contributions over time, which helps minimise the impact of market volatility. This strategy follows the principle of rupee cost averaging, meaning you purchase extra units when prices are lower and fewer when they rise, leading to a balanced average cost over the long run.

Here’s an estimate of the potential returns each option could deliver over 10 years at an assumed interest rate of 12% per annum.

Investing In Mutual Fund SIPs:

Monthly investment: Rs 3,000

Tenure: 10 years

Total investment: Rs 3.6 lakh

Expected returns: 12%

Estimated returns: Rs 3.12 lakh

Maturity corpus: Rs 6.72 lakh

Investing In A Mutual Fund Lump Sum

Total investment: Rs 3 lakh

Tenure: 10 years

Expected returns: 12%

Estimated returns: Rs 6.32 lakh

Maturity corpus: Rs 9.32 lakh

For most investors, particularly salaried individuals, SIPs offer a convenient option to accumulate wealth. But if you already have a substantial amount to invest, a lump sum investment might help you earn higher returns. In general, SIPs suit cautious investors, whereas lump sum investments are for those with higher risk appetite.