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Mutual Fund SIP vs Lump Sum Investment: Many investors prefer setting up an SIP to park their savings in mutual funds gradually. This is particularly helpful in cases where the investor does not want to block or simply does not have a significant pile of surplus cash at once, having only limited funds available for investing regularly. However, combining a lump sum investment--or a one-time investment--with an SIP in a carefully selected mutual fund can increase their chances of building wealth thanks to compounding, which is nothing but periodic returns getting added up to initial principal and leading to accelerated overall investment growth.
In this article, let’s take annualised return rates of 10 per cent, 11 per cent, 12 per cent and 15 per cent, and see what they can actually mean for an investor making a lump sum deposit of Rs 2,50,000 lakh in a fund and setting up a Rs 5,100 monthly SIP in the same fund for 30 years.
Now, let’s look at our examples in detail.
10% Annualised Return: What a Rs 2.5 lakh one-time investment followed by a Rs 5,100 monthly SIP may mean for investors
At an annualised 10 per cent return, a Rs 2.5 lakh initial investment and a Rs 5,100 monthly SIP will lead to a corpus of approximately Rs 1.60 crore in 30 years (given the total investment of Rs 20.86 lakh), calculations show.
11% Annualised Return: What a Rs 2.5 lakh one-time investment followed by a Rs 5,100 monthly SIP may mean for investors
Similarly, an 11 per cent annualised return will lead to a corpus of approximately Rs 2.02 crore, calculations show.
12% Annualised Return: What a Rs 2.5 lakh one-time investment followed by a Rs 5,100 monthly SIP may mean for investors
Similarly, a 12 per cent annualised return will lead to a corpus of approximately Rs 2.55 crore, calculations show.
15% Annualised Return: What a Rs 2.5 lakh one-time investment followed by a Rs 5,100 monthly SIP may mean for investors
Now, can you guess the amount of wealth you should be able to build at an even higher return, of say 15 per cent?
The same investment will lead to a total corpus of approximately Rs 5.23 crore at an annualised return of 15 per cent, calculations show.
SIP Without Initial Investment | What if you take the Rs 2.5 lakh initial investment out of the picture?
Let’s see what happens if the investor instead chooses to set up a monthly SIP of Rs 5,100 without any initial investment.
Spreading the same Rs 20.86 lakh of total investment over a period of 30 years leads to a monthly SIP of approximately Rs 5,794.
A total investment of almost Rs 20.86 lakh through monthly instalments of Rs 5,794 will lead to a corpus of approximately Rs 1.31 crore at 10 per cent, Rs 1.64 crore at 11 per cent, Rs 2.05 crore at 12 per cent and Rs 4.06 crore at 15 per cent, calculations show.
However, it is worth noting that these examples take the same annualised return for lump sum and SIP investments. Practically, annualised returns vary in lump sum and SIP modes of investing for a number of reasons. Investors must also consider that although lump sum investments may perform better in a rising market, SIPs outperform lump sum investments in times of market downturn or volatility.
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