SIP vs Lumpsum: Which Is Better? Worked Examples and Risks
SIP vs lumpsum compared with worked rupee examples in rising, falling and choppy markets, plus how rupee-cost averaging works and what it cannot do.
By Awais, Founder and editor-in-chiefPublished
If you already have a large sum and markets rise steadily, a lumpsum investment usually ends up ahead, because all your money is invested for longer. A SIP (systematic investment plan) wins when prices fall or swing before they recover, and it suits most people because it matches how they earn: a little every month.
Neither method removes market risk. The examples below use made-up NAVs to show how each behaves. This guide is general information, not investment advice. Mutual fund investments are subject to market risks; read all scheme-related documents carefully.
What each method means
- SIP: you invest a fixed amount, such as ₹10,000, on a fixed date every month. Each instalment buys units at that day’s NAV (net asset value per unit).
- Lumpsum: you invest the whole amount at once, at one NAV.
AMFI’s investor education site explains that with a SIP your average cost per unit tends to fall over time when markets fluctuate, because a fixed amount buys more units when the NAV is low and fewer when it is high. This is called rupee-cost averaging.
Worked example: ₹60,000 three ways
Compare two investors in the same equity fund over six months. One invests ₹10,000 a month by SIP. The other invests ₹60,000 at once in month 1. We value both portfolios at the month-6 NAV.
Market 1: falls, then recovers
| Month | NAV (₹) | SIP units bought |
|---|---|---|
| 1 | 50 | 200.00 |
| 2 | 40 | 250.00 |
| 3 | 32 | 312.50 |
| 4 | 40 | 250.00 |
| 5 | 45 | 222.22 |
| 6 | 50 | 200.00 |
| Total | 1,434.72 |
- SIP: 1,434.72 units × ₹50 = ₹71,736, a gain of 19.6%.
- Lumpsum: ₹60,000 ÷ ₹50 = 1,200 units × ₹50 = ₹60,000, no gain.
The SIP’s average cost per unit is ₹60,000 ÷ 1,434.72 = ₹41.82, lower than the simple average NAV of ₹42.83. That gap is rupee-cost averaging at work. The NAV ended where it started, yet the SIP made money because it bought heavily during the dip.
Market 2: rises steadily
NAVs of ₹50, 55, 60, 65, 70 and 75:
- SIP: 978.52 units × ₹75 = ₹73,389 (+22.3%).
- Lumpsum: 1,200 units × ₹75 = ₹90,000 (+50%).
Here the lumpsum wins clearly. Every later SIP instalment bought at a higher price.
Market 3: falls steadily
NAVs of ₹50, 45, 40, 35, 30 and 25:
- SIP: 1,691.27 units × ₹25 = ₹42,282 (−29.5%).
- Lumpsum: 1,200 units × ₹25 = ₹30,000 (−50%).
Both lose money. The SIP loses less, but it does not protect you. Averaging lowers your cost; it cannot stop the value falling below that cost.
Summary
| Market path | SIP result | Lumpsum result | Better |
|---|---|---|---|
| Dip, then recovery | ₹71,736 | ₹60,000 | SIP |
| Steady rise | ₹73,389 | ₹90,000 | Lumpsum |
| Steady fall | ₹42,282 | ₹30,000 | SIP (smaller loss) |
Nobody knows in advance which path the market will take. That is the real case for SIPs: they reduce the risk of investing everything at a bad moment, at the cost of some return when markets simply rise.
The long-term view: money invested for longer grows more
Over many years, the time your money spends invested matters more than the price of any single month. The standard SIP future-value formula, assuming a constant return and investment at the start of each month, is:
P = monthly SIP, i = expected annual return ÷ 12, n = number of months
At an assumed 12% a year (i = 0.01), a ₹10,000 monthly SIP grows like this:
| Years | Total invested | Value at 12% a year |
|---|---|---|
| 5 | ₹6,00,000 | ₹8,24,864 |
| 10 | ₹12,00,000 | ₹23,23,391 |
| 15 | ₹18,00,000 | ₹50,45,760 |
| 20 | ₹24,00,000 | ₹99,91,479 |
Now suppose you already had ₹12,00,000 and invested it all at once at the same 12% compounded yearly. After 10 years it would be 12,00,000 × 1.1210 = ₹37,27,018, compared with ₹23,23,391 for the SIP. The lumpsum had the full amount working from day one.
That comparison is only fair if you actually have the money today. Most people do not; they earn it monthly. For them, the realistic choice is not SIP vs lumpsum but SIP vs waiting, and waiting costs growth. Real returns are never a steady 12%, so treat these figures as illustrations. Try your own numbers in the SIP calculator, or see how a single deposit grows in the compound interest calculator.
How to choose
A SIP usually makes sense if
- you invest from a monthly salary
- you are new to equity funds and worried about investing at a market high
- you want discipline: the amount goes out automatically before you can spend it
- your goal is five or more years away
A lumpsum can make sense if
- you have a large amount now (bonus, inheritance, maturity of a deposit)
- your time horizon is long and you can sit through a fall without selling
- you are investing in a debt or liquid fund, where prices move far less
AMFI’s guidance on choosing between SIP and lumpsum makes a similar point: regular investing suits building wealth toward a goal, while a lumpsum suits surplus money.
A middle path: stagger the lumpsum
If you have a large sum but fear investing it at a peak, you can spread it out. Many fund houses offer a systematic transfer plan (STP): you park the money in a liquid or debt fund and move a fixed amount into an equity fund each month. Spreading a lumpsum over 6 to 12 months gives up some return if markets rise, in exchange for less regret if they fall.
Risks that apply to both
- Market risk. Equity funds can fall sharply and stay down for years. Rupee-cost averaging lowers your average cost; it does not guarantee a profit.
- Stopping at the wrong time. A SIP helps most when you keep buying through a fall. It is tempting to stop when markets drop, but that is exactly when SIP units are cheapest.
- Costs and taxes. Expense ratios, exit loads and capital gains tax reduce returns. Check the scheme documents.
- Goal mismatch. Money needed within a year or two usually does not belong in equity funds, whichever method you use.
Before investing, check that the fund and its distributor are registered, and use the SEBI investor website for neutral education material.
FAQ
Is SIP better than lumpsum in the long run?
Not always. If markets rise steadily, a lumpsum invested earlier usually ends with more money. A SIP reduces the risk of a badly timed entry and fits monthly income.
What is rupee-cost averaging?
Investing a fixed amount at regular intervals, so you buy more units when prices are low and fewer when they are high. Your average cost per unit ends up below the average NAV over the period.
Can a SIP lose money?
Yes. If the NAV at the time you sell is below your average cost, the investment is at a loss. In our falling-market example, the SIP lost 29.5%.
Should I stop my SIP when the market falls?
Stopping locks in fewer cheap units. If your goal and time horizon have not changed, continuing usually makes more sense, but review whether the fund still suits you.
Is it better to invest a bonus all at once?
If your horizon is long and markets rise, investing it at once gives your money more time to grow, but the risk of a badly timed entry is higher. Spreading it over a few months with an STP reduces that risk.