Rs 12K SIP for 20 Years vs Rs 12 Lakh Lump Sum Investment Today: Which mutual fund investment option may create more wealth for you?

SIP vs Lump Sum in Mutual Funds: Many investors opt for mutual fund investment these days, but they often find themselves at the crossroads of two choices. Should they invest through a systematic investment plan (SIP), depositing a fixed amount as per their income cycle, or should they avoid the cycle of monthly investment and invest a large amount in one go? The purpose of both investments may be to get high returns and achieve financial goals, but which option may help you create a larger corpus? SIP or lump sum?

Similarly, if you are given a choice of starting a Rs 12,000 monthly SIP investment and investing a Rs 12 lakh lump sum amount for 20 years each, which of the two can help you generate a higher corpus? See our calculations to know-

SIP vs lump sum 

Let's take the example of a Rs 24 lakh lump sum investment and a Rs 10,000 monthly SIP investment for 20 years. In each case, the total investment is Rs 24 lakh.

If you get a 12 per cent annualised return on both investments, this is how your corpus will grow year by year.

Corpus from Rs 10,000 SIP investment  

In 20 years, estimated capital gains will be Rs 67,98,574, and the estimated corpus will be Rs 91,98,574. This is how the investment will grow every year. 

Rs 20 lakh lump sum investment

At a 12 per cent annualised return, estimated capital gains will be Rs 2,07,51,103 and the estimated corpus will be Rs 2,31,51,103. 

If you look at the capital gains generated from either investment, there is a large difference; it is because in a lump sum investment, you get compounding on the entire amount from Day 1.

On the other hand, you invest an amount through SIP step by step and get compounding only on that amount. 

SIP+lump sum investment 

Now see another stage, where you mix SIP investment with lump sum investment.

E.g., you start an Rs 10,000 SIP for 20 years and invest an Rs 8 lakh lump sum upfront and get a 12 per cent annualised return on both.

Let's see what corpus you may generate.

In SIP, on a Rs 24 lakh total investment, estimated capital gains will be Rs 67,98,574, and the estimated corpus will be Rs 91,98,574.  

In a lump sum, on a one-third investment of the SIP amount, estimated capital gains will be Rs 69,17,034, and the estimated corpus will be Rs 77,17,034.  

You can see that with a one-third investment, the estimated corpus generated in the lump sum option is Rs 14,81,540 less than the corpus generated from SIP investment.

It is also because in your lump sum investment, you are getting compounding on the entire sum from the first day.

Rs 12K SIP for 20 Years or Rs 12 Lakh One-time Investment 

Here, we will see which of the two investments may help create a larger corpus at a 12 per cent annualised return—a Rs 12,000 monthly SIP investment for 20 years or a Rs 12 lakh lump sum investment for 20 years.

The total SIP investment in 20 years will be Rs 28,80,000, estimated capital gains will be Rs 81,58,288, and the estimated corpus will be Rs 1,10,38,288.

In the lump sum investment, estimated capital gains will be Rs 1,03,75,552, and the estimated corpus will be Rs 1,15,75,552.

Which is better- SIP or lump sum?

Both investments are good. Picking SIP or lump sum investment may depend on an individual's income flow, investment capacity, earning cycle, and financial goals.

If the investment is target-orientated, one may choose SIP, lump sum, or both.

(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for investment advice.)