SIP and Lumpsum Investment
Mutual fund investors often have a question about how to grow their money in the long run. Do SIP or lumpsum investment? To understand this, we are comparing a monthly SIP of ₹1,000 and a lump sum investment of ₹1 lakh over a period of 20 years, assuming both yield 15% annual returns.
How correct is it to assume 15% return for 20 years?
15% annual return in 20 years is not a very high estimate. Data from around 300 active equity mutual funds of India’s big fund companies show that many funds have given returns of 15% to 18% in 20 years. Be it SIP or Lumpsum. Such good returns have been seen especially in midcap, flexicap, multicap, value and sectoral/thematic funds. That means, if you choose the right fund, a long term return of 15% is possible.
How do SIP and lumpsum investments work?
In SIP you invest a fixed amount every month. It is popular among employed people and new investors because it creates a habit of investing, the impact of market fluctuations is averaged out and there is no need to invest a large amount at once. Whereas in lump sum investment a large amount is invested at one go. This method can be beneficial for those who have extra money and long investment time.
- Monthly SIP of ₹1,000 (20 years, 15% returns)
- Total investment: ₹2,40,000
- Estimated Returns: ₹10,87,073
- Total value after 20 years: ₹13,27,073
- Lumpsum investment of ₹1 lakh (20 years, 15% returns)
- Lump sum investment: ₹1,00,000
- Estimated Returns: ₹15,36,654
- Total value after 20 years: ₹16,36,654
After all, who is better?
There is not much difference between the two in terms of returns, but SIP has some clear advantages. It is easy to start with a small amount, take advantage of market fluctuations and continue investing for a long time. Good money can be made from both SIP and Lumpsum in 20 years. SIP is considered a more easy and stress-free method for common and new investors.