Guide
Lump sum or SIP? What the same money does under a steady return
Suppose you have 12 lakh to invest for ten years. You could put it all in today, or you could spread it over the ten years as a monthly SIP of 10,000. Both involve exactly the same amount of your money. This calculator answers the first-order question that follows: if the investment earned a constant return, which approach would leave you with more, and by how much?
The two calculations
The lump sum grows by compounding every month at the yearly rate divided by 12: amount × (1 + rate ÷ 1,200)^months. The SIP is a series of equal instalments, each equal to the total divided by the number of months, made at the start of each month and compounded in the same way. The page uses the monthly convention of the SIP calculator on this site so that the two are directly comparable.
A worked example
With 12,00,000 over 10 years at 12%, the lump sum grows to 39,60,464 and the SIP of 10,000 a month to 23,23,391. The lump sum is ahead by 16,37,074; it multiplies the money 3.30 times against 1.94 times for the SIP. The effective annual return implied by 12% compounded monthly is 12.68%. The table shows the first year: 13,52,190 for the lump sum, while the SIP has put in 1,20,000 and holds 1,28,093. The second sample, 6,00,000 over 15 years at 8%, gives 19,84,153 against 11,61,150 with a monthly instalment of 3,333.
Why the lump sum wins here
The reason is exposure time. A rupee invested on day one earns growth for all 120 months. The SIP’s instalments earn growth for 120, 119, 118 months and so on down to one, so the average money is invested for about half the period. With a constant return the lump sum therefore always comes out ahead, and the gap is larger for higher returns and longer periods. The comparison tells you how much waiting costs when the market behaves perfectly.
What the model leaves out
Real markets are not steady. If prices fall soon after you invest a lump sum, you suffer the full loss on the whole amount, whereas a SIP buys more units at the low prices and benefits from the recovery. If prices rise throughout, the lump sum does better, as the model shows. Nobody can know in advance which will happen, which is why the SIP is described as managing the risk of timing, not as a way to earn more.
Choosing the inputs
Use the amount you really have to invest and a cautious return. Returns far above what markets have delivered over long periods produce impressive but unreliable numbers, and a short period leaves little time to recover from a fall whichever way you invest. The page accepts returns between −50 and 100 percent for experiments, and the term must be a whole number of years.
Limits
Tax, exit loads, expense ratios and the opportunity cost of holding cash while waiting to invest are not included. For a SIP that rises each year, use the step-up SIP calculator, and for the withdrawal phase use the SWP calculator.
Related tools
- SIP Calculator projects a monthly investment on its own, with an optional yearly increase.
- Step-Up SIP Calculator compares a rising instalment with a flat one.
- Compound Interest Calculator grows a lump sum at fixed intervals.
- SWP Calculator models taking income out once the money has grown.
Checked against the current version of the Lump Sum vs SIP Calculator on .