SIP vs Lumpsum Mutual Fund

SIP vs Lumpsum Mutual Fund 

The biggest difference between SIP and lumpsum mutual funds is that SIP requires you to invest through regular installments, and the lumpsum investment requires you to invest a large sum of money at a time.

You can use online calculators to decide how much to invest with SIP and how much with a lumpsum as per your investment goals. A SIP calculator can be used to know the total wealth and earnings that you can accumulate by investing a certain amount in installments and a lumpsum calculator can be used to know the total wealth and earnings that you can accumulate by investing an amount at one point in time in a mutual fund scheme. 

This article covers : 

What Is SIP In Mutual Funds With Example 

SIP (Systematic Investment Plan) is an investment method provided by mutual funds wherein investors can invest a fixed amount in regular monthly, quarterly, or semi-annual installments with the amount being as low as ₹100.

For example, if you decide to invest through the SIP in a mutual fund with a 5-year lock-in period. The monthly installment amount is ₹1,000 starting from February 9th, 2024. Assuming the mutual fund gives a 12% return, then on maturity, you will receive a total amount of ₹82,486. You will earn total returns of ₹22,486 over and above the total invested amount of ₹60,000.

What Is Lumpsum In Mutual Fund?

Lumpsum in mutual funds denotes the requirement to invest a lump sum at a single point in time. Investors who have a sizable investment amount and a high-risk tolerance can go with the lumpsum investment. 

For example, if you decide to invest the lumpsum in the same mutual fund as you are choosing for the SIP with a 5-year lock-in period, you can invest the entire amount of, say, ₹60,000 in one go on February 9th, 2024. Assuming that the mutual fund gives a 12% return, then you will receive the total amount of ₹1,05,741 after 5 years on February 9th, 2028. 

Difference Between SIP And Lumpsum

The key difference between SIP and lumpsum is that SIP provides you with the flexibility to invest in a selected mutual fund in regular installments which can be done weekly, monthly, quarterly, or semi-annually whereas lump-sum investments involve investing at one point in time. 

Here are the points of difference between SIP and lumpsum that will help you choose between the two:

S. No.Points of DifferenceSIPLumpsum

NAV Check
In a SIP, you must keep a close eye on the NAV of a mutual fund because you will get units based on the current NAV.You don’t have to continuously check the NAV because the daily changes in the NAV will not affect how many units you will get.
2.Change the Installment Amount SIPs are more flexible, and you can invest a small amount with regular installments and also change the installment amount or pause it anytime. Lumpsums are not flexible, and you have to invest the amount in one go. 
3.Habit of Regular InvestingSIP encourages the habit of regular investment by deducting installments automatically from your bank account on a specified date.A lumpsum does not help in making a habit of regular investing because it is only a one-time investment.
4.Response to Market VolatilitySIP investments do not require an active response to market volatility because you can benefit from the rupee cost averaging over a long period.When making a Lumpsum investment, experts recommend purchasing during a bear market and closely monitoring market volatility.
5.Cash OutflowIn SIP investment, you will have pre-determined regular cash outflows.A lumpsum investment requires you to invest with one-time cash outflows which can be unpredictable. 
6.Invest in Growing MarketWhen the market is continuously growing, and the NAV keeps increasing, you shouldn’t use the SIP method, as the allotted number of units will decline every month with the rising NAV.When the NAV is continuously growing, investing in a lump-sum mutual fund is good, as you will benefit from compounding power in the long run.
7.Risk ProfileSIPs are better for investors with a low-risk profile because you don’t have to put in a huge amount at once and can benefit from capital protection.Lumpsums are good if you have a high appetite for risk and can wait for the returns in the long term.
8.Minimum Investment AmountThe minimum investment amount in SIP is ₹100, but it can vary for every scheme. The minimum investment amount in a lumpsum is ₹1,000 but it can vary for every scheme. 
9.Right Time to StartWith SIPs mutual funds, there is no appropriate time to start because the fluctuation will average down in the long run.In lump-sum mutual funds, choosing the right time to invest matters a lot.
10.Total Cost SIP will have a lower cost of investment because of the rupee cost averaging. A lumpsum investment will have a higher cost as you will not benefit from averaging.

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SIP vs Lumpsum Mutual Fund- Quick Summary

  • SIP is an investment method in mutual funds where a fixed amount is invested periodically which can be weekly, monthly, or quarterly. 
  • Lumpsum investment in mutual funds means investing the entire amount at once. 
  • The key difference between SIP and lumpsum is that SIP requires regular investing and lumpsum requires one-time investing. 
  • SIP investment decision doesn’t require a need to check the market volatility which lumpsum investing requires.

SIP vs Lumpsum Mutual Fund- Frequently Asked Questions 

1. What is the difference between SIP and Lumpsum mutual funds?

While lumpsum mutual funds require a significant one-time investment, systematic investment plans (SIPs) involve regular investments of a fixed amount. SIP offers rupee-cost averaging, whereas lump sum investments demand market timing expertise.

2. Which is better lumpsum or SIP?

SIP is better than lumpsum because you will get the benefit of rupee cost averaging and you can invest in small regular installments. 

3. Can I do lumpsum every month instead of SIP?

Yes, you can invest a lumpsum every month instead of SIP but only as a completely different investment each time. 

4. Will I be charged if I cancel SIP?

No, you won’t be charged if you cancel SIP, but sometimes you have to pay the exit load if you redeem it before the lock-in period.

5. Why lumpsum investing is better?

Lumpsum investment is a better option when investing in ELSS mutual funds or debt funds for a long period. 

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