A SIP (systematic investment plan) puts in a fixed amount every month. A lump sum puts in one amount at the start. The two grow in different ways, so comparing them takes a little care. This guide shows the maths. It is not investment advice, and returns are never guaranteed.
How a SIP grows
Each monthly instalment grows only for the time it stays invested. The first instalment grows for the whole period, and the last one for just a month. The SIP calculator uses the monthly rate (the yearly rate divided by 12) and assumes each instalment is made at the start of the month.
How a lump sum grows
A lump sum grows for the whole period from day one. The lumpsum calculator compounds the full amount for the number of years you choose.
A worked comparison
Assume an expected return of 12% a year for 10 years. Both numbers below are only assumptions for the maths, not a forecast.
SIP: Rs 5,000 a month for 120 months.
- Total invested: Rs 6,00,000.
- With a monthly rate of 1%, the estimated value is about Rs 11,61,695.
- Estimated gain: about Rs 5,61,695.
Lump sum: Rs 6,00,000 invested on day one, at 12% compounded yearly.
- Total invested: Rs 6,00,000.
- After 10 years the estimated value is about Rs 18,63,509.
- Estimated gain: about Rs 12,63,509.
The lump sum ends higher here, but only because the whole Rs 6,00,000 is invested from the start. The SIP reaches the same total invested over 10 years, so most of it spends less time growing. That is not a mistake in the maths. It is the nature of spreading money over time.
Comparing them fairly
A fair comparison asks what you actually have available.
- If you earn a monthly salary, a lump sum may not exist. A SIP matches how the money arrives.
- If you receive a bonus or a maturity amount, you can run the lump sum calculator and see how long it might take to grow.
- If you invest in a market-linked product, the return will not be a steady 12%. Run the calculator with a lower and a higher rate to see the range.
Things to remember
- The expected return is your assumption. Actual returns can be lower, or negative in some years.
- Charges and tax are not included in the calculators.
- A SIP does not remove risk. It only spreads the timing of your purchases.
Steps
- Open the SIP calculator and enter the monthly amount, the expected return and the years.
- Note the amount invested and the estimated value.
- Open the lumpsum calculator and enter the same total, return and years.
- Compare the two, then repeat with a lower return to see how much the answer depends on it.
For advice on a specific product, speak to a registered adviser.