SIP vs lumpsum: which is better for money you already have?
₹5 lakh invested at once ends ₹60,000 ahead of a 12-month spread in a steady market. If markets fall 20% first, spreading ends ₹1.7 lakh ahead.
6 min read
You have ₹5 L in the bank: a bonus, a maturing FD, money from a sale. Should it go into an equity fund today, or in monthly instalments over the next year?
Short answer: investing at once usually ends ahead, because markets rise more often than they fall. Spreading it out costs a little in normal years and protects you in a bad one. Which matters more depends on how you'd react to a fall.
First: SIP vs lumpsum is only a choice for money in hand
If you invest from your salary every month, a SIP isn't a strategy, it's simply how the money arrives. Invest it as soon as it comes in.
The real question is about a sum you already have. Spreading it out is called a systematic transfer plan (STP): the money waits in a liquid fund (earning about 6.5% here) and moves into equity a fixed amount each month.
When markets rise steadily, all at once wins
Money in the market earns the market's return. Money waiting in a liquid fund earns less. In a steady market, every month you wait costs you the gap between the two.
Figure 1 from the Lumpsum vs SIP calculator
Steady market: ₹5 L invested at once ends ₹59.9K ahead
How to read it
- 1The last instalment goes in after 12 months. Until then part of the money earned only the liquid fund's return.
- 2After 10 years and tax, all at once ends at ₹15.17 L; the spread ends at ₹14.57 L.
When markets fall first, spreading wins
Now suppose the market falls 20% in the first year, goes nowhere in the second, then catches up so that the 10-year average is the same 12%. Only the order of the years has changed.
Figure 2 from the Lumpsum vs SIP calculator
Market falls 20% first: spreading ends ₹1.74 L ahead
How to read it
- 1After the fall, all at once is down to ₹4 L. The spread holds ₹4.55 L, having bought most of its units at lower prices.
- 2Those cheaper units grow with the recovery, so the spread finishes at ₹16.91 L against ₹15.17 L.
How long should you spread it?
| Spread over | Cost if steady | Gain if it falls |
|---|---|---|
| 3 months | ₹11.3K | ₹30K |
| 6 months | ₹27.9K | ₹76.3K |
| 12 months | ₹59.9K | ₹1.74 L |
| 24 months | ₹1.2 L | ₹2.91 L |
The gain in a fall is bigger than the cost in a steady market, but steady markets are far more common. A longer spread is insurance, and you pay for it in most years.
Try it with your numbersLumpsum or SIP?Enter your amount and how many months to spread it over, then switch between a steady market and a fall.
So which should you choose?
- Invest at once if the money is for 7 years or more and you wouldn't sell after a fall.
- Spread it over 6 to 12 months if a fall right after investing would keep you awake, or make you stop. A plan you stick to beats a better plan you abandon.
- Don't spread it for years. Beyond 12 to 24 months, most of the money sits out of the market for too long.
- Keep goals within three years out of equity altogether, whichever way you invest.
For a bonus or windfall, check the emergency fund and costly debt before investing: where each rupee of a bonus should go first.
What this doesn't mean
- The fall is a stress test, not a forecast. Markets can also fall later, or several times.
- Returns aren't guaranteed. 12% is a long-run equity figure, and real years vary widely.
- Tax is included. Equity gains pay 12.5% LTCG above ₹1.25 lakh;[1] liquid-fund interest is taxed at your slab (30% here).
Equity at 12% a year; liquid fund at 6.5%, taxed at 30%; value after selling in year 10. For illustration only, not investment advice.
Sources
- [1]Union Budget 2024-25: Budget speech (capital gains: 12.5% LTCG, ₹1.25 lakh exemption, 20% STCG) (opens in a new tab)Ministry of Finance, Government of India · 23 Jul 2024