SIP vs Lump Sum: Which Gives More Returns? (Worked Examples)

The short answer

If you already have the money and returns are the same every year, a lump sum invested today always ends up larger than the same amount spread over a SIP, simply because all of it is invested for longer. ₹6 lakh invested at once for 5 years at 12% a year grows to about ₹10.57 lakh; ₹10,000 a month for the same 5 years (also ₹6 lakh in total) grows to about ₹8.25 lakh. A SIP wins only when prices fall after you start, and its real strengths are fitting your monthly income and reducing the risk of investing everything at a bad time. Try your own numbers in the SIP Calculator.

Why the comparison is often unfair

Most "SIP vs lump sum" examples compare two different situations:

• SIP: money arrives every month from your salary and is invested as it arrives.
• Lump sum: you have a large amount today, from a bonus, maturity or sale, and must decide how to invest it.

If your money arrives monthly, you cannot invest it as a lump sum years in advance, so SIP is not a choice; it is simply how you invest. The real question only arises when you hold a large sum now. That is what this guide covers.

The maths with a steady return

Here are two ways to invest ₹6,00,000 over 5 years, both assuming a fixed 12% annual return. The SIP figure comes from the SIP Calculator, which compounds monthly and assumes each instalment is invested at the start of the month. The lump-sum figure uses yearly compounding, which you can reproduce in the Compound Interest Calculator by choosing annual compounding.

| Lump sum today	SIP of ₹10,000/month
Total invested	₹6,00,000	₹6,00,000
Value after 5 years at 12%	₹10,57,405	₹8,24,864
Gain	₹4,57,405	₹2,24,864

The gap widens with time. Over 10 years, ₹12 lakh invested at once grows to about ₹37.27 lakh, while ₹10,000 a month (also ₹12 lakh in total) grows to about ₹23.23 lakh.

The reason is time in the market. In a SIP, the last instalment is invested for only one month. On average, SIP money is invested for about half the period, so it has less time to compound.

When a SIP comes out ahead

Real markets do not grow at a steady 12%. Prices go up and down, and the order of those moves matters.

Illustration (made-up prices, not a forecast): suppose a fund's unit price is ₹100, then ₹80, then ₹125 over three months, and ends at ₹110.

• SIP: ₹10,000 each month buys 100, 125 and 80 units: 305 units in total. Worth 305 × ₹110 = ₹33,550.
• Lump sum: ₹30,000 in month one buys 300 units. Worth 300 × ₹110 = ₹33,000.

The SIP bought more units when the price dipped, so its average cost was ₹98.36, below the average price of ₹101.67. This effect is called rupee cost averaging.

Now flip the path: prices of ₹100, ₹120 and ₹140, ending at ₹140.

• SIP: buys 100, 83.33 and 71.43 units: 254.76 units, worth about ₹35,667.
• Lump sum: 300 units, worth ₹42,000.

When prices rise steadily, the lump sum wins because it bought everything at the lowest price. Rupee cost averaging does not guarantee a better result; it guarantees you will not put everything in at the single worst moment.

How to decide

Choose a lump sum when

• The money is meant for a goal many years away, so short-term falls have time to recover.
• You can stay invested through a fall of 20% or more without selling in panic.
• The investment is relatively stable, such as a debt fund or a fixed deposit, where timing matters little.

Choose a SIP or staggered entry when

• You would regret it badly if the market fell soon after you invested everything.
• The money comes from salary, so monthly investing is the natural fit.
• You are new to equity investing and want to experience ups and downs with smaller amounts first.

The middle path: stagger the lump sum

One option is to park a large sum in a low-risk option and move it into equity in equal parts over 6 to 12 months. Mutual funds offer this as a Systematic Transfer Plan (STP) from a debt fund to an equity fund of the same fund house. You give up a little expected return compared with investing at once, in exchange for a smoother entry. Check the fund's terms for exit loads and tax before setting one up, because each transfer is treated as a redemption from the source fund.

Using the SIP Calculator for this comparison

The calculator has four sliders:

• Monthly SIP: ₹500 to ₹1,00,000
• Expected return (p.a.): 1% to 30%
• Investment period: 1 to 40 years
• Annual step-up: 0% to 25%

It shows the total invested, the expected corpus and the wealth gained, plus a year-by-year table. To compare with a lump sum:

Divide the lump sum by the number of months you would spread it over, and enter that as the monthly SIP.

Set the same return and period.

Note the expected corpus.

In the Compound Interest Calculator, enter the full amount as the principal with the same rate and years, and compare.

Remember the calculator assumes the same return every month. It cannot show the effect of market falls, so use it to understand the time-in-market gap, not to predict which approach will win.

Common mistakes

• Treating the expected return as certain. 12% is an assumption, not a promise. Try 8% and 10% too.
• Holding cash for years waiting for a crash. Money that sits idle in a savings account earns less than either approach would on average.
• Stopping a SIP when markets fall. That is exactly when a SIP buys the most units.
• Ignoring the step-up. If your income grows, increasing the SIP each year makes a large difference; see how much more a step-up SIP builds.

For a target-based plan, see how much SIP you need for ₹1 crore.

This guide explains the general rules and is not tax advice. Mutual fund returns are not guaranteed, and past returns do not predict future returns.