SIP vs. Lump Sum: Mutual funds have become the most popular choice among investors these days. The main reason for this is that mutual funds can offer higher returns than traditional bank savings instruments. They are easy to start and professionally managed. There are two main ways to invest in mutual funds: the first is through a SIP (Systematic Investment Plan) and the second is through a lump sum investment. Investors often compare these two options to reach their goal of ₹1 crore.
What is a SIP?
SIP means investing small amounts every month. For example, you can invest ₹10,000 or even smaller amounts, such as ₹1,000, every month. You don’t need to invest a large sum at once. SIP is ideal for those who want to build a large corpus over the long term through regular savings. The biggest advantage of a SIP is that it helps balance market fluctuations and allows the fund to grow quickly through compounding, i.e., interest on interest.
What is a Lump Sum?
In a lump sum, you invest a large sum of money at one time. For example, investing ₹10 lakh at once. If the market is rising, this investment can yield good returns quickly. However, it carries a higher risk, as losses can occur if the market falls. Lump sum investments are best suited for those who already have a large amount of money and are able to take risks.
₹10,000 SIP vs. ₹10 lakh Lump Sum
If you invest ₹10 lakh in a lump sum and earn 12% annual returns, the estimated total value could reach ₹96,46,293 in 20 years. If you invest ₹10,000 every month through a SIP and earn a 12% annual return, the total amount could reach ₹91,98,574 after 20 years. The total investment amount in the SIP would be ₹2.4 million, while the lump sum investment would be only ₹1 million.
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Which is the better option?
SIP is ideal for small investors because it allows regular investments of small amounts to build a large corpus over the long term. A lump sum is better for investors with a large lump sum and who can withstand market fluctuations. Both investment options can reach the ₹1 crore target, but returns depend entirely on the investment period and market conditions.
