SIP vs Lump Sum Calculator: Rs 10 lakh investment in 5 years; which can create higher corpus for you?
Lump Sum vs SIP Calculator: Investors seeking investment in mutual funds can make lump sum or systematic investment plan (SIP) invesmtent. While it is important to time market in a lump sum investment, SIP investment can be started irrespective of the market situation.
Lump Sum vs SIP Calculator: Which investment mode in mutual funds is better, lump sum or systematic investment plan (SIP)? Mutual fund investors often find themselves at a crossroads when deciding about the two. In a lump sum investment, an investor can invest their amount in one go, while in a SIP, one makes periodic investments in a cycle that can be daily, weekly, monthly, quarterly, half-yearly, or yearly.
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(This is not investment advice. Do your own due diligence or consult an expert for financial planning.)
When can investor make lump sum investment?
Lump sum investment in equity or hybrid funds can be made when the market is down. But how to know if the market can go further down? To negate this effect, either the lump sum can be done when the market is significantly down from its all-time high or when an investor doesn't need the maturity amount in the near future.
Compounding in lump sum
In a lump sum investment, the investor is issued net asset value (NAV) units at the time of investment. As the fund's asset under management (AUM) increase with the value of stocks it has invested in, the NAV price also rises.
Compounding in lump sum
In the long run, the NAV price may increase many times. As a result, the investment can also rise faster with time due to compounding. Lump sum investment is advisable for the long term.
When SIP investment can be made
In SIP investment, one buys NAVs at different prices every investment cycle. So, when the market is up, the investor buys less NAVs; when the market is down, the investor buys more. This process is known as rupee cost averaging. But if a fund is continuously going down, SIP investor needs to review its performance.
Compounding in SIP investment
Since one buys NAVs at different rates at every investment cycle, the value of investment rises with the time.
Compounding in SIP investment
In a span of 5-7 years, this difference is more visible. If one invests for more than 10 years, the impact of compounding is even more significant.
Lump sum and SIP calculation conditions
For our story, we are taking the example of Rs 10 lakh investment. Since in SIP, we can't invest in one go, we will take Rs 10 lakh as the total investment amount in 5 years (60 months). So, the monthly investment in this case will be Rs 16,666.
Rate of return
In either case, the annualised rate of return will be 12 per cent.
Corpus from lump sum investment in 5 years
On investing Rs 10 lakh, estimated capital gains will be Rs 7,62,342, while the estimated corpus will be Rs 17,62,342.
Corpus from SIP investment in 5 years
On a Rs 16,666 monthly SIP investment, capital gains in 3,74,758 and the estimated corpus will be Rs 13,74,718.