SIP vs lumpsum: which is better for you?
The same ₹6 lakh invested monthly versus all at once, what history says about timing, and a simple rule for deciding based on where the money is coming from.
“Should I invest ₹6 lakh in one go or ₹10,000 a month for five years?” The honest answer is that it depends less on the market and more on where the ₹6 lakh is coming from. Here is how to think about it, with numbers from the SIP and lumpsum calculators.
The maths, assuming steady returns
At a steady 12% a year, ₹6 lakh invested today grows to about ₹10.6 lakh in five years. The same ₹6 lakh drip-fed as ₹10,000 a month grows to roughly ₹8.2 lakh, because on average each rupee is invested for only two and a half years instead of five. If you already have the money and returns were guaranteed, lumpsum wins every time. Markets, of course, do not move in straight lines.
What volatility does
A SIP buys more units when prices are low and fewer when they are high, so your average purchase price ends up below the average market price. This rupee cost averaging cushions you if the market falls soon after you start. Studies of the Nifty 50 over rolling five-year windows show lumpsum beating SIP in roughly two out of three periods, because markets rise more often than they fall, but the SIP has a much narrower range of outcomes. In other words: lumpsum has the higher expected return, SIP has the lower regret.
The question that actually settles it
Ask where the money comes from.
- Monthly salary. You do not have a lump sum; you have a stream. A SIP is not a choice, it is the only option, and it doubles as a discipline device. Set it for the day after payday.
- A bonus, inheritance or property sale. You have a lump sum. Keeping it in a savings account “waiting for a dip” costs you 3–4% a year in lost returns while you wait. Either invest it now or, if a crash would keep you up at night, spread it over 6–12 months through an STP (systematic transfer plan) from a liquid fund. That is a fast SIP with the cash earning 6–7% in the meantime.
- A market that has just fallen 20%. History favours deploying a lump sum after large falls. If you have the money and the stomach, do it in two or three tranches over a few weeks.
Comparing returns fairly
A lumpsum’s return is a CAGR: one start value, one end value, one duration, and the CAGR calculator does it in a second. A SIP’s return is an XIRR because each instalment has its own date; the SIP calculator’s “return multiple” and wealth-gained figures show the same idea. Do not compare a fund’s 5-year CAGR from a fact sheet with the XIRR of your own SIP; they answer different questions.
Step-up SIP: the best of both
If you are salaried, increase the SIP by 10% every year as your income grows. On ₹10,000 a month at 12% for 15 years, a plain SIP reaches about ₹50 lakh; a 10% annual step-up reaches about ₹87 lakh from ₹38 lakh invested. The step-up option in the SIP calculator shows this for your own numbers.
A practical rule
Salary income: SIP, automatically, forever. Windfalls under a few months of salary: invest at once. Large windfalls: STP over 6–12 months into the same funds. Whatever you pick, the decision that matters most is the equity allocation and staying invested through the next fall, not the entry timing.