Rs 20,000 SIP Vs Rs 10 Lakh Lump Sum — Crorepati Outcome Compared

Financial discipline and consistency play a crucial role in building a sizable corpus over the years. While it is important to learn marketable skills and generate a good income, you also need to make your money work for you. By investing in high-return assets over a long-term horizon, you can easily achieve an ambitious target of building a Rs 1 crore corpus.

You can diversify your portfolio across different assets such as gold, Public Provident Fund (PPF), real estate, fixed deposits (FDs) and mutual funds. It’s advisable to assess your risk appetite, financial situation and investment horizon before choosing the investment instruments for your crorepati dream.

For many investors, it may seem a tough task to achieve the goal of Rs 1 crore. However, instruments like mutual fund systematic investment plans (SIPs) and lump sum investments may help you to reach this ambitious target conveniently. But choosing between an SIP and a lump sum investment should be based on your financial condition and investment horizon.  

For instance, let’s see how long it will take to achieve your goal with a monthly SIP of Rs 20,000 and a lump sum investment of Rs 10 lakh. Let’s understand how your money could grow over the years through detailed calculations:

Rs 20,000 SIP For Building A Rs 1 Crore Corpus

Monthly investment: Rs 20,000

Tenure: 16 years

Total investment: Rs 38.4 lakh

Expected rate of return: 12% per annum

Estimated returns: Rs 77.87 lakh

Maturity corpus: Rs 1.16 crore

Total investment: Rs 10 lakh

Tenure: 21 years

Expected rate of return: 12% per annum

Estimated returns: Rs 98.03 lakh

Maturity corpus: Rs 1.08 crore

As per the above calculations, at an assumed interest rate of 12% per annum, a monthly SIP of Rs 20,000 will help you reach the Rs 1 crore goal in around 16 years.  On the other hand, a lump sum investment of Rs 10 lakh at the same estimated annual rate of return could turn into Rs 1 crore in 21 years. So, an SIP could be helpful in achieving your crorepati goal five years earlier, compared to a lump sum investment, in the given scenario.

This demonstrates the ability of SIP investments in building a large corpus with regular, small contributions due to the power of compounding. A lump sum investment could be more rewarding when you invest the money during a market slump. The entire amount starts earning returns from day one. However, it’s important to note that both SIPs and lump sum investments are prone to market risks.  

The biggest advantage of SIP is its ability to enforce financial discipline. You're consistently putting money into the market, regardless of its ups and downs. The overall investment amount is also a lot greater in the case of an SIP compared to the lump sum investment.

Before choosing between the two investment instruments, it’s advisable to assess your financial conditions and risk factors. A consultation with a financial planner could also help you build a prudent financial strategy.