Monthly SIP vs Yearly SIP vs Lump Sum: Rs 1,000 monthly SIP, Rs 12,000 yearly SIP vs or Rs 60,000 lump sum MF investment, which works best over years?

Monthly SIP vs Yearly SIP vs Lump Sum Mutual Fund Investment: Did you know that fund houses today offer different types of systematic investment plans (SIPs) to suit your investment style and cash flow? By carefully selecting the right frequency and amount, one can make the most of their SIP to invest in the mutual fund scheme of choice without having to disturb their cash flow or compromise on their regular expenses. In this article, you can compare the potential outcomes of different types of investments in a mutual fund scheme at the same expected annualised return of 12 per cent and the same investment period of 5 years: A Rs 1,000 monthly SIP and a Rs 12,000 yearly SIP. 

However, nothing beats the outcome of a lump sum mutual fund investment, wherein the investor parks the entire amount of money at once. This is because of compounding. So, comparing these estimates with a lump sum investment of the same total amount invested will further highlight the difference between these investments. 

Which one would you choose: A Rs 1,000 monthly SIP, a Rs 12,000 yearly SIP or a lump sum investment of Rs 60,000—each for 5 years?

Let’s compare the three scenarios: A Rs 1,000 monthly SIP for 5 years, a Rs 12,000 yearly SIP for 5 years and a lump sum investment of Rs 60,000 for 5 years.

In each of the three scenarios, the total sum invested will be Rs 60,000. 

Scenario 1: Rs  1,000 monthly SIP for 5 years

At the expected annualised return of 12 per cent, a Rs 1,000 monthly SIP will accumulate a corpus of an estimated Rs 82,486 (with a principal of Rs 60,000 and an expected return of Rs 22,486), show calculations. 

Scenario 2: Rs 12,000 yearly SIP for 5 years

At the same expected return, a Rs 12,000 yearly SIP will lead to a corpus of an estimated Rs 85,382.27 (with a Rs 60,000 principal and a Rs 25,382 estimated return), as per calculations. 

Scenario 3: a Rs 60,000 lump sum investment for 5 years

A one-time investment of Rs 60,000 will lead to a corpus of approximately Rs 1.06 lakh (with an estimated return of Rs 45,741). 

ALSO READ: Small SIP, Big Impact: Rs 500 monthly investment for 30 years or Rs 5,000 for 10 years, which do you think works better?

Power of Compounding | The larger the sum invested for longer, the greater the result...

Financial planners often emphasise the importance of investing and staying invested for longer periods in order to tap the power of compounding, which is nothing but a process where interest earned on an investment is reinvested to generate even more interest, creating a snowball effect can essentially build wealth significantly over time. Read more on the power of compounding