SIP vs Lump Sum: A lump sum investment of ₹5 lakh or an SIP of ₹5,000—which yields more money after 15 years?
SIP vs. Lump Sum: When investing, we often face a dilemma: should we invest a lump sum or opt for a monthly SIP? Let’s assume you have ₹5 lakh. You have two options: invest the entire amount at once or start a monthly SIP with a fixed amount, say ₹5,000.
The question is, which method yields more money after 15 years? The answer lies in the mathematics of compounding. The calculations here assume an annual return of 12%, which is the average return mutual funds tend to deliver over the long term.
How much will a ₹5,000 monthly SIP generate in 15 years?
If you invest ₹5,000 per month via SIP, your total investment over 15 years would be ₹9 lakh.
At an estimated annual return of 12%, this amount could grow to approximately ₹25.23 lakh. This comprises your investment of ₹9 lakh and estimated returns of around ₹16.23 lakh. In other words, a modest monthly SIP of ₹5,000 can build a corpus of over ₹25 lakh in 15 years.
How much will a ₹5 lakh lump sum investment generate?
Now, consider the second scenario. You have ₹5 lakh at the outset and invest the entire amount at once. If this investment earns an average annual return of 12% over 15 years, the ₹5 lakh could grow to approximately ₹27.37 lakh.
This includes estimated returns of around ₹22.37 lakh. Here, your initial investment remained ₹5 lakh, yet after 15 years, the total amount exceeded ₹27 lakh.
What is the difference between the two?
Let’s look at both calculations side-by-side. Investment Method | Total Investment | Fund Value after 15 Years | Estimated Returns
₹5,000 Monthly SIP | ₹9 Lakh | ₹25.23 Lakh | ₹16.23 Lakh
₹5 Lakh Lump Sum | ₹5 Lakh | ₹27.37 Lakh | ₹22.37 Lakh
Based on this, a lump sum investment of ₹5 lakh can generate approximately ₹2.14 lakh more in the final corpus. It is worth noting that with the SIP, you invested a total of ₹9 lakh over 15 years, whereas with the lump sum investment, you invested only ₹5 lakh. Yet, the lump sum investment yielded a larger corpus.
Why did the lump sum investment perform better?
The simple reason is time. In a lump sum investment, the entire ₹5 lakh is deployed in the market from day one. This means the full amount gets the benefit of compounding for the entire 15-year period.
With an SIP, money is invested in smaller installments every month. Consequently, the entire amount does not get the full 15 years to grow. That is why, assuming the same rate of return, a lump sum investment results in a larger corpus.
So, when is an SIP a better option?
This does not mean that everyone should opt for a lump sum investment. If you already have ₹5 lakh and can invest it for 15 years, a lump sum investment can benefit from long-term compounding.
However, if you do not have a large lump sum available, an SIP is an easier route. You can invest ₹5,000 from your monthly earnings. This also helps cultivate the habit of investing.
Additionally, markets fluctuate. With an SIP, money is invested at different times, so you avoid the risk of deploying the entire amount at a single market price point.
Disclaimer: This content has been sourced and edited from Money Control. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.
