Learn · SIPs and compounding
SIP or lump sum
Investing a bit every month or all at once. What each is good at.
3 min read
Two ways in
A SIP invests a fixed amount every month. A lump sum invests all of it at once. Both buy units of the same fund at that day's NAV.
Side by side
SIP or lump sum
SIP
- A fixed amount every month
- Fits money that arrives monthly
- Buys more units when prices are low
Lump sum
- All of it at once
- Fits a bonus or savings you already have
- More time in the market
Guess first
₹1.2 lakh for 10 years at an assumed 12% a year. Which ends up bigger?
See the answer
All of it at once. At once, it could grow to about ₹3.73 lakh. ₹1,000 a month (also ₹1.2 lakh in total) could reach about ₹2.24 lakh. The lump sum had longer in the market. An illustration; real returns go up and down.
So which one
If you have a lump sum and a long goal, investing it sooner has usually done better than waiting. If you're nervous about timing, split it over 6 to 12 months. For money you earn each month, a SIP is the natural fit.
Myth
A SIP protects me from losses.
Fact
A SIP spreads out when you buy, but the fund can still fall. What protects you is time and matching the fund to your goal.
Stopping is easy
You can pause or stop a SIP whenever you want, with no penalty from the fund. Your existing units stay invested.
Words from this lesson
- Lump sum: Investing a large amount at once instead of monthly.
- Rupee cost averaging: Buying more units when prices are low and fewer when high, by investing a fixed amount.
- STP: Systematic transfer plan: moving a fixed amount from one fund to another every month.
Next in SIPs and compounding: Compounding: why starting early matters