SIP vs Lumpsum: The biggest question that comes to mind when a common man steps into the world of investment is – what is the investment method? Depositing small amounts of money every month (SIP), or investing a large sum of money at once (Lumpsum)? Recently, famous financial influencer Ankur Wariku has shown the figures of this Rs 5,000 investment in one of his videos. According to his analysis, there can be a huge difference in the returns of these two methods in the long run.
Before investing in mutual funds or the stock market, it is very important to understand the real difference and the risk of these two methods. Let’s see where your Rs 5,000 investment can take you in 30 years.
Comparative analysis of investments
According to the information given in the video, a clear difference can be observed between the returns of SIP and Lumpsum over time. How the effect of compounding works, especially in the case of long-term investments, can be understood by looking at the table below.
Time Period SIP Value (Estimated) Lumpsum Value (Estimated)
After 1 year ₹44,400 ₹7,800
After 10 years, the difference starts to increase significantly
After 30 years, about 2 crore 2 lakhs, about 7 crore 4 lakhs
Anyone’s eyes are bound to rise when they see the above statistics. After 30 years, where the amount of money deposited through SIP is about 2 crores, in Lumpsum or one-time investment, that figure reaches 7 crores. So is one-time investment better? Here lies the real mystery.
The real risk or ‘The Catch’
With the naked eye, seeing a return of 7 crores, Lumpsum may seem the best, but the real picture is not always that simple. Ankur Wariku has mentioned the main risk behind this in his analysis, which is market timing.
Market uncertainty: In Lumpsum investment, the most important thing is at what ‘price’ or price you enter the market. If you invest money when the market is at its peak (High), then your returns will not be very good.
The responsibility of knowing the right time: On the other hand, if you can pour money when the market is falling (Low), then only that huge return is possible. But the problem is, it is almost impossible for the average investor to understand whether the market is now ‘High’ or ‘Low’.
Final decision: Which is right for you?
After the analysis, the issue that comes up is security and peace of mind. SIP (Systematic Investment Plan) is the safest and wisest choice to avoid the risks and uncertainties of market timing.
In SIP, you invest on a specific date every month, so whether the market is up or down – you get the benefit of average or ‘rupee cost averaging’. Therefore, instead of falling for the lure of 7 crores, it is believed that SIP method is more acceptable to build a sure and risk-free wealth in the long term.
Disclaimer: This report is for informational purposes only and does not constitute financial advice. Investing in mutual funds or the stock market involves risk. Please consult your financial advisor and read all documents carefully before investing.
Related Posts
Avijit
A digital media professional with 4 years of experience, skilled in online content creation, media and information work, his goal is to regularly bring updates on government projects, scholarships and jobs to his readers.
Related Stories
Education
Business
Business
Education
Business
latest news
Auto
Business
Auto
Education