SIP vs Lump Sum Calculator
SIP vs Lump Sum Calculator
The same money invested all at once today, or spread over the same years as a monthly SIP, at the same assumed return. See both values, the gap, and why the answer is not the whole story.
SIP vs lump sum
$12,00,000 for 10 years at 12% a year: all today, or $10,000 a month
The two values
- T
- the total amount, the same for both
- i
- the monthly rate: annual return ÷ 12 ÷ 100, as on the SIP calculator
- n
- the number of months; the SIP instalment P is T ÷ n, invested at the start of each month
- j
- the monthly rate on money waiting to be invested (0 = off); what it earns is added to the SIP route
Worked example
$12,00,000 for 10 years at 12% a year: all today, or $10,000 a month
i = 12 ÷ 12 ÷ 100 = 0.01; n = 120; (1.01)120 = 3.3004
Lump sum: 12,00,000 × 3.3004 = $39,60,464
SIP: 10,000 × (3.3004 − 1) ÷ 0.01 × 1.01 = $23,23,391
The lump sum ends ahead by 39,60,464 − 23,23,391 = $16,37,074
12,00,000 over 10 years: all today or 10,000 a month
| Return | Lump sum | SIP | Lump sum ahead by |
|---|---|---|---|
| 8% | $26,63,568 | $18,41,657 | 45% |
| 10% | $32,48,450 | $20,65,520 | 57% |
| 12% | $39,60,464 | $23,23,391 | 70% |
| 15% | $53,28,256 | $27,86,573 | 91% |
Why the lump sum wins here, and why that is not the whole answer
With the same money and the same steady return, a lump sum always ends ahead of a SIP. The arithmetic is simple: the lump sum is invested for all 120 months, while the average SIP rupee is invested for only about 60.5 of them. On the example, $12,00,000 at 12% grows to $39,60,464 as a lump sum and $23,23,391 as a SIP. That is not a flaw in SIPs. It is what investing later means.
So why do so many people invest by SIP? Two real reasons, neither of which a steady-return calculator can show. First, most people do not have the lump sum. A SIP invests salary as it arrives. The honest comparison for them is a SIP against spending the money or leaving it in a bank, not against a lump sum they never had. Second, markets are volatile. A fixed monthly amount buys more units when prices are low and fewer when they are high (rupee-cost averaging), and it spreads the risk of investing everything just before a fall. That lowers the regret of bad timing. It does not raise the expected return: studies of long market histories have found a lump sum ahead in most periods, because markets rose more often than they fell.
If you do hold a lump sum and choose to feed it in gradually, the money still waiting can earn something in a savings account or liquid fund. Set that rate above and it is added to the SIP route. At 6% on the waiting money, the example’s gap narrows from $16,37,074 to $11,00,785. Some fund houses offer a systematic transfer plan (STP) that works this way.
Conventions: both routes use annual return ÷ 12 as the monthly rate, the same as the SIP calculator, so the lump sum here compounds monthly. The lumpsum calculator compounds once a year, so its figure for the same inputs is a little lower. Tax and exit loads are left out; they apply to both routes. This is arithmetic on the figures you enter, not financial advice.
Frequently asked questions
Is a SIP better than a lump sum?
Not on arithmetic. At the same steady positive return, a lump sum invested today always ends with more, because the money is invested for longer. A SIP’s advantages are practical: it invests income you have not received yet, and it spreads the risk of bad timing in a volatile market.
What is rupee-cost averaging?
Investing a fixed amount at regular intervals, so you buy more units when the price is low and fewer when it is high. It reduces the risk of putting everything in just before a fall. It does not guarantee a profit or protect against a loss in a falling market.
I have a lump sum. Should I invest it all at once?
History favours investing sooner, but a large fall straight after investing is hard to live with. Spreading it over a few months with the rest parked in a liquid fund is a compromise that trades a little expected return for less timing risk. This page shows what that trade costs at a steady return; it cannot tell you what the market will do.
Why does the lump sum figure differ from the lumpsum calculator?
This page compounds monthly at annual ÷ 12, the SIP convention, so both routes are treated the same way. The lumpsum calculator compounds yearly. Same idea, slightly different convention.
Related calculators
References
- Shtekhman A, Tasopoulos C, Wimmer B. Dollar-cost averaging just means taking risk later. Vanguard Research, July 2012. Lump-sum investing ahead of phased investing in most historical periods in the US, UK and Australia, because markets rose more often than they fell.
- Bodie Z, Kane A, Marcus AJ. Investments. McGraw-Hill. Risk and return, and the time value of money.
- Brealey RA, Myers SC, Allen F. Principles of Corporate Finance. McGraw-Hill. Present and future values, annuities and growing annuities.
- Securities and Exchange Board of India (SEBI) / Association of Mutual Funds in India (AMFI). Mandatory risk statement for mutual fund communications: “Mutual fund investments are subject to market risks, read all scheme related documents carefully.”
- Central-bank inflation targets used as default inflation by currency: Reserve Bank of India (4% CPI, flexible inflation targeting framework); U.S. Federal Reserve (2% PCE); European Central Bank (2%); Bank of England (2% CPI); Bank of Canada (2%); Reserve Bank of Australia (2–3%); Bangko Sentral ng Pilipinas (3% ± 1). Actual inflation often runs above target.