Many Indians dream of achieving a corpus of Rs 1 crore. It is certainly possible to achieve such a corpus by making investments in financial instruments. A popular instrument in India is a mutual fund.
When it comes to building wealth in India, two popular routes for mutual fund investments are a Systematic Investment Plan (SIP) and a lump sum investment. But if one wants to achieve a corpus of Rs 1 crore faster, which is the better option?
Assuming an annual interest rate of 12%, we have done some calculations to answer this question:
Investing In A Mutual Fund Lump Sum:
Total investment: Rs 5 lakh
Tenure: 27 years
Expected returns (assumed): 12%
Estimated returns: Rs 1.02 crore
Maturity corpus: Rs 1.07 crore
Investing In Mutual Fund SIPs:
Monthly investment needed: Rs 10,000
Tenure: 21 years
Total investment: Rs 25.2 lakh
Expected returns: 12%
Estimated returns: Rs 79.1 lakh
Maturity corpus: Rs 1.04 crore
You can reach your goal faster with SIPs than through a lump sum investment. Also note that the total invested amount in the case of an SIP far exceeds that of the lump sum investment.
A SIP allows you to invest a fixed amount every month, such as Rs 10,000, which brings several advantages, including rupee cost averaging and flexibility to increase or pause investments as per your convenience.
A lump sum investment involves putting Rs 5 lakh into the market at once, exposing your entire capital to market fluctuations immediately, but offers the potential to take advantage of long-term market growth from day one.
Typically, lump sum investments tend to generate higher returns earlier if the market is on an upward trajectory, because your entire corpus is growing from the start.
However, SIPs are safer for volatile markets as they spread out market entry points and reduce timing risks through rupee cost averaging, which can provide steadier growth.
Over longer horizons, SIP with disciplined monthly contributions can match or even exceed lump sum returns, especially when markets experience corrections soon after a lump sum investment.
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