Rs 10 Lakh Lump Sum Vs Rs 50,000 Monthly SIP — Which Creates More Wealth?
An SIP allows you to invest a small amount regularly, generally every month, while a lump sum investment helps to receive returns on a large principal amount from the first day.
Mutual funds have become popular among investors in the last few years due to attractive returns, a wider choice, and enormous flexibility in terms of tenure and investment amount. Currently, mutual funds in India are offering a wide range of plans to cater to the needs of investors across income categories. You can invest a large amount upfront through a lump sum scheme or small amounts at regular intervals in a systematic investment plan (SIP).
However, it could be a tedious task to choose between an SIP and a lump sum investment. Both investment modes come with their own merits and limitations, which may lead to significant differences in maturity corpus.
A Systematic Investment Plan allows you to invest a small amount regularly, generally every month, while a lump sum investment helps to receive returns on a large principal amount from the first day. Financial discipline and consistency can make a huge difference in your wealth accumulation journey. Generally, SIPs offer more flexibility and allow your money to grow over a long-term horizon due to the power of compounding and rupee cost averaging. On the other hand, lump sum investments could be more rewarding when invested during a favourable market condition.
Financial experts often suggest to choose between SIP and lump sum investments based on your financial condition, risk appetite and long-term goals.
Let’s see how a Rs 10 Lakh lump sum investment and a monthly SIP of Rs 50,000 can grow over a fixed tenure at an assumed return of 12% per annum.
Rs 50,000 SIP vs Rs 10 Lakh Lump Sum
Rs 50,000 monthly SIP:
SIP amount: Rs 50,000
Investment duration: 10 years
Expected rate of return: 12%
Invested amount: Rs 60,00,000
Estimated returns: Rs 56,16,953
Total value: Rs 1,16,16,953
Rs 10 lakh lump sum investment:
Investment amount: Rs 10,00,000
Investment duration: 10 years
Expected rate of return: 12%
Invested amount: Rs 10,00,000
Estimated returns: Rs 21,05,848
Total value: Rs 31,05,848
As seen from the above calculation, a lump sum investment can grow more than three times over 10 years at an expected return of 12% per annum. However, steady SIPs can grow into a substantial retirement corpus. A monthly SIP of Rs 50,000 in the same scenario can grow into more than Rs 1 crore. Here, SIP emerges as the most effective tool to generate more wealth.
With SIPs, your overall contribution could be much higher, but the advantage lies in disciplined investing. On the other hand, a lump sum investment could be a suitable option to supplement your regular contributions.
For best results, it is always recommended to consult a financial expert before investing. They can help assess your risk appetite and financial goals. This will help you have a realistic picture of your investment journey.
