Rs 5,000 SIP Vs Rs 5 Lakh Lump Sum: Which One Is Better For Making Rs 50 Lakh?

Investing in mutual funds is becoming a popular way to grow wealth, especially among young investors. While there are several investment strategies for mutual funds and stock markets, investors often face a dilemma over choosing between a systematic investment plan (SIP) and a lump sum investment.

Given the current festive season, in case you get your hands on some bonus or gifts and have a collective Rs 5 lakh for investment, should you go for a lump sum investment? Or can a monthly SIP amount help you generate more returns? 

A simple calculation, based on historical returns, can help assess which of the two modes has the potential to reach Rs 50 lakh faster. To be clear, these figures indicate an estimated value and actual returns may fluctuate due to market volatility and other factors.

Outcome of SIP:

Monthly SIP: Rs 5,000

Time: 20 years

Expected return: 12%

Invested amount: Rs 12,00,000

Estimated returns: Rs 37,95,739

Total value: Rs 49,95,739

Lump Sum Amount: 

Investment: Rs 5 lakh

Expected return: 12%

Time: 20 years

Estimated returns: Rs 43,23,146

Total value: Rs 48,23,146

As seen above, over the same investment horizon of 20 years, the lump sum option can generate nearly the same returns as an SIP, despite requiring less than half the total investment amount. This is due to the power of compounding, which helps Rs 5 lakh to grow at a higher level right from the beginning of the investment.

While the above calculations show that your investment may touch nearly Rs 5 lakh in 20 years. It may take slightly longer than that to touch or cross that figure.

Both investment options come with their limitations and advantages.  While mutual fund SIP schemes offer greater flexibility, lump sum investments come with the potential of higher returns.

Choosing the right type of investment depends on factors such as salary, EMIs, investment duration and risk appetite, among other things. Both methods have potential for higher returns, but SIPs offer steady growth with lower risk exposure.

Regardless, it is always recommended to seek guidance from a certified financial expert on high-value investments. This will help you in making the right choices based on your needs and goals and avoid any potential financial stress.