Thinking of investment but confused on how to invest, then you are at the right place. Investment in mutual funds can be done in two ways Lumpsum and SIP. SIP is investing regular sum at a regular interval of time while lumpsum is investing a substantial amount one-time. Any investment that you plan is based on your investment profile, which includes your current income, expenses, financial goals, risk appetite and willingness to invest. Depending upon your preference you can choose to invest through a regular SIP or one-time lumpsum amount.

Now let’s just see what exactly is lumpsum and SIP way of investment –

Lumpsum Investment – It stands for a one-time investment of any amount in mutual funds. If you have a substantial disposable amount in hand and have a higher risk tolerance, in that case, you opt for lumpsum investment. Like say, you want to invest INR 12,000 every year.

SIP (Systematic Investment Plan) – SIP is investing a fixed amount at a regular interval of time it may be daily, weekly, or monthly. Like say, you want to invest INR 12,000 in a year you can invest INR 1000/ month.

Which is better SIP or Lumpsum?

It depends on the present market condition. In a bull market condition, the lumpsum investment gives a relatively higher return while during bear market conditions SIP tends to give a higher return as SIP gets the benefit of rupee cost averaging.

Let’s clear this out with an example – 


Suppose you invest Rs. 12 lakhs during rising market condition over say, from October 1, 2013, to September 1, 2014, and a monthly SIP of Rs. 1,00,000 in the same fund during the same period, the lump sum investment would have given you better returns.


If you would have made a lump sum investment of Rs. 12 lakhs during falling markets say, over say February 1, 2015, to January 1, 2016, and a monthly SIP of Rs. 1,00,000 in the same fund during the same period, the SIP investment would have given you better returns.  

So, it all depends on which market condition you are planning to invest, in the long run though both forms of investment give better returns.

SIP, however, has got some more benefits over lumpsum – 

  • Rupee Cost Averaging – SIP lets you invest in both the bear and bull market conditions. During the high time, the SIP amount buys you fewer units and during low, the same amount buys you higher units. This ultimately helps in reducing the per-unit cost of purchasing.
  • Power of Compounding – SIP allows you to reinvest your principal amount as well as the interest earned on it. Get the benefit of compounding as you earn returns on the returns generated by your investment.
  • The discipline of Investment – SIP makes you disciplined when it comes to investment, when you invest via SIP you invest a regular sum at a regular interval that makes you disciplined.
  • Past Performance – In the past, it has been witnessed that SIP gives higher returns in the long-term than lumpsum.
  • Saves from Market Volatility – SIP allows you to spread your investment over time so that not all your investment face market volatility while in lumpsum investment your entire money faces the market volatility.

Be a wise investor and invest according to your preference keeping in mind your goals, risk appetite, and market condition.

(Source: Various web sources)

#Names used in the article are fictional and are not concerned with any specific person.

*The write up is on best effort basis and the author doesn’t guarantee about its correctness. Any investment made based on this information will not make us responsible for the same.

(Mutual Fund investments are subject to market risk. Kindly read all the related documents carefully before investing. Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns)