Rs 8,000 Monthly SIP Vs Rs 2 Lakh Lump Sum — Who Reaches Rs 50 Lakh First?

With the evolving financial services landscape in India, investors are exploring more rewarding investment options compared to traditional secure instruments like fixed deposits. Mutual funds have become popular among investors in recent years as they provide enormous flexibility and potentially higher returns. However, it’s a common dilemma for many mutual fund investors to choose between a Systematic Investment Plan (SIP) and a lump sum investment for building a sizable corpus.

Both SIPs and lump sum investments come with their benefits and risks and the returns could significantly vary due to multiple factors. Suppose you want to build a corpus of Rs 50 lakh, and you can choose between investing Rs 2 lakh lump sum or starting a monthly SIP of Rs 8,000, which investment route should you take?

To answer this question, let’s see through calculations how your money will grow in both scenarios. 

Both SIP and lump sum investments could be helpful in reaching the Rs 50 lakh goal conveniently. However, the investment tenure may vary significantly.

Here’s a look at the expected growth of your investments over a fixed period to reach the target of Rs 50 lakh at an assumed return of 12% per annum:   

Rs 8,000 monthly SIP:

Monthly investment: Rs 8,000

Tenure: 17 years

Total investment: Rs 16.32 lakh

Expected returns: 12%

Estimated returns: Rs 37.11 lakh

Maturity corpus: Rs 53.43 lakh

Investing In A Mutual Fund Lump Sum:

Total investment: Rs 2 lakh

Tenure: 29 years

Expected returns: 12%

Estimated returns: Rs 51.5 lakh

Maturity corpus: Rs 53.5 lakh

It’s important to note that the rate of return can vary due to market conditions and other factors from what has been shown in the above calculations.

At an assumed interest rate of 12% per annum, a monthly SIP of Rs 8,000 can help an investor to reach the target of Rs 50 lakh faster compared to a lump sum investment of Rs 2 lakh.  

Over the long run, the SIP investor is committing a significantly higher total amount. After just two years, the SIP investor would have contributed a total of Rs 1,92,000, almost matching the lump sum investment. This difference in total contribution is the key factor in achieving the goal of Rs 50 lakh.

As seen from the above calculation, an investor can reach the target of Rs 50 lakh in 17 years with a monthly SIP of Rs 8,000. However, a lump sum investment of Rs 2 lakh is expected to grow into Rs 13.73 lakh during the same tenure. It will take 29 years for an investor to hit the target of Rs 50 lakh with a lump sum investment of Rs 2 lakh.

Further, it is important to note that even if you increase the lump sum investment to a higher amount, like Rs 5 lakh, then it will still take around 21 years to reach the intended corpus.

Both SIPs and lump sum investments could be rewarding in the long term. It’s important to assess risk factors and your financial condition before investing a significant amount.