When it comes to investing in mutual funds, should one invest a large amount at once or put money into the market every month? The answer depends on how much money you have, your risk appetite and your financial goals.
For instance, if you have Rs 5 lakh to invest, you could put the entire amount into a mutual fund through a lump-sum investment. Alternatively, you could start a Systematic Investment Plan (SIP) of Rs 25,000 a month.
Also Read | Layoffs Are Rising In Tech, But These Skills Are Helping People Unlock Better Pay
Both approaches involve different investment amounts and timelines. While a lump-sum investment puts your money to work immediately, an SIP allows you to invest gradually and build your portfolio through regular contributions.
So, what could build more wealth over 20 years? Let's find out.
Also Read: "Father, 58, Has 0 Retirement Savings": At 27, Techie Faces Bill With No End Date
Rs 5 Lakh Lump-Sum Investment: How Much Could You Earn In 20 Years?
A lump-sum investment involves investing the entire amount at once. Since the money is invested from the beginning, the full amount gets the opportunity to benefit from market growth over the investment period.
The returns depend on market performance. Investing a large amount when the market is high can expose investors to short-term losses if the market subsequently declines.
Let's assume you invest Rs 5 lakh in an equity mutual fund for 20 years and earn an average annual return of 12%.
Here is how your investment could grow:
- Lumpsum Investment: Rs 5 lakh
- Assumed Annual Return: 12% per year
- Investment duration: 20 years
- Total Amount Invested: Rs 5 lakh
- Estimated Returns: Rs 43.23 lakh
- Total Expected Corpus: Rs 48.23 lakh
Under these assumptions, your initial investment of Rs 5 lakh could grow to approximately Rs 48.23 lakh over two decades.
Rs 25,000 Monthly SIP: How Much Could You Earn In 20 Years?
An SIP allows you to invest a fixed amount in a mutual fund at regular intervals, usually every month. Instead of investing a large sum upfront, you spread your contributions over the investment period.
This approach can make investing more manageable for people who earn a regular income. It also allows investors to purchase more mutual fund units when prices are lower and fewer when prices are higher.
Let's assume you invest Rs 25,000 every month for 20 years and earn an assumed annual return of 12%. Here is how your investment could grow:
- Monthly Investment: Rs 25,000
- Assumed Annual Return: 12% per year
- Investment duration: 20 years
- Total Amount Invested: Rs 60 lakh
- Estimated Returns: Rs 1.89 crore
- Total Expected Corpus: Rs 2.49 crore
With this, your total investment of Rs 60 lakh could grow to approximately Rs 2.49 crore over 20 years.
Also Read: If Zerodha Disappeared And He Had Just Rs 10 Lakh, What Would Nikhil Kamath Do?
SIP vs Lump Sum: Which Investment Could Build More Wealth?
Based on these calculations, a Rs 25,000 monthly SIP could build a significantly larger corpus than a Rs 5 lakh lump-sum investment over 20 years.
The SIP could accumulate approximately Rs 2 crore more than the lump-sum investment. However, this comparison involves different total investments: the SIP investor contributes Rs 55 lakh more over 20 years.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
