If you have Rs 1.2 lakh to invest in a year, should you invest Rs 10,000 every month through a Systematic Investment Plan (SIP) or put the entire amount into the market at once? Both approaches have their advantages, but the key difference lies in when your money enters the market.
Let's look at an example to understand how the two strategies compare.
Same Money, Two Different Strategies
Assume that you invest Rs. 1.2 lakhs every year for the next 10 years.
ALSO READ: Buying A House In Five Years? How Much Of Your Monthly Savings Should Go Into An SIP?
Option 1: Monthly SIP
You invest Rs. 10,000 every month. You make gradual investments, enabling you to purchase mutual fund units at lower prices and less when prices are high. It is called rupee cost averaging.
Assuming both investments earn an illustrative annual return of 12%, compounded monthly for the SIP and annually for the lump sum, the results after 10 years could look approximately like this:
| Particulars | Monthly SIP | Annual Lump Sum |
| Monthly Investment | Rs. 10,000 | — |
| Annual Investment | Rs. 1.2 lakh | Rs. 1.2 lakh |
| Total Investment | Rs. 12 lakh | Rs. 12 lakh |
| Estimated Value | Rs. 23 lakh | Rs. 21 lakh |
These are illustrative estimates, not guaranteed returns. Actual results will depend on market performance and investment dates.
Option 2: Annual Lump Sum
Rather than investing Rs. 10,000 every month, consider that you will invest Rs. 1.2 lakhs in January at the start of each year for the next 10 years.
Your entire annual investment is put into the market at once, which gives it more time to grow as opposed to investments that are made over time via a SIP.
However, this approach also means that if the market falls shortly after you invest, your entire amount is exposed to that decline. With a monthly SIP, your investments are spread across different market conditions.
For a fair comparison, both strategies invest Rs. 12 lakh in total over 10 years. The key difference is when the money enters the market, not how much you invest.
Which Is a Better Choice?
A monthly SIP can be a practical choice for salaried individuals because it matches their monthly income and removes the pressure of timing the market.
On the other hand, if you already have Rs. 1.2 lakh available at the beginning of the year, investing it earlier may give your money more time to grow. The outcome will depend on how the market performs.
ALSO READ: SIP To SWP: How Large A Corpus Do You Need To Withdraw Rs 50,000 A Month?
Investment timing matters, but consistency matters too. Instead of waiting for the perfect market opportunity, choose an approach that suits your cash flow, financial goals, and risk tolerance.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.