A Rs 1-crore milestone is often the first major financial target for many long-term investors. Many may wonder what could be a more ideal journey to reach this goal: monthly investment via systematic payments or lumpsum contribution. Many may also consider what could be the right asset and if equity-oriented mutual funds are an ideal option.
A comparison between a Rs 10,000 monthly SIP and a Rs 10 lakh lump sum shows an interesting result in mutual fund investments. The Rs 10,000-per-month SIP is generally ideal for beginners and investors on a tight budget. It inculcates the habit of fiscal discipline and builds consistency. On the other hand, those with Rs 10 lakh lump sum may be able to benefit more due to the enhanced power of compounding.
Surprisingly, both methods take a similar time frame to reach the goal, depending on market returns. However, the key difference lies in total investment value. Calculation shows that Rs 10,000 SIP to reach Rs 1-crore goal may need more than twice the investment value compared to a lump sum of Rs 10 lakh. This is because the lumpsum investment benefits from compounding as the entire amount starts growing immediately.
What Calculation Shows:
- SIP amount: Rs 10,000
- Investment duration: 20.5 years
- Expected rate of return: 12%
- Invested amount: Rs 24,60,000
- Estimated returns: Rs 82,08,291
- Total value: Rs 1,06,68,291
Lumpsum Investment
- Investment amount: Rs 10,00,000
- Investment duration: 21 years
- Expected rate of return: 12%
- Estimated returns: Rs 98,03,848
- Total value: Rs 1,08,03,848
This shows that both SIP and lump sum investments can reach similar long-term outcomes when the rate of return and time horizon are the same. But a Rs 10 lakh lump sum grows faster initially due to full compounding. Eventually, picking the right path depends on the investors' personal financial goals and other obligations. If their lifestyle, spending habits and income are modest in nature, they can opt for the SIP path to build a steady corpus without burning their pockets.
In any case, mutual fund investments are risky as they are subject to market fluctuations and do not offer guaranteed returns. Investors are advised to consult experts before making any long-term commitments.
ALSO READ: Retiring With Rs 1.5 Crore Corpus? See How Much Monthly Income You Can Really Expect
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