SIP Vs. Lumpsum – Which is the Best way to Invest in Mutual Fund?

SIP (Systematic Investment Plan) or Lump sum – Which is the Best way to invest in Mutual Fund? Which investment method would lead to higher returns? A question asked by almost all new investors. We help you find an answer to this eternal debate.

SIP was introduced by Franklin Templeton Mutual Fund more than 15 years back. The idea was simple you buy mutual fund units on a monthly basis for a fixed amount. When the markets are low you would be able to buy more units and on high markets, you’ll be able to buy lesser units. This not only helped in averaging the unit price over long period of time but also helped people invest in a disciplined manner every month.

SIP vs. Lump sum – The Cash flow

SIP Vs. Lump sum choice depends on the cash you have in hand. In case you have a corpus ready you might think if you should invest in one go or do a SIP. However if you do not have a lump sum corpus and have a monthly income, you obviously have NO option but to DO SIP. Also a person whose future income is uncertain, SIP is NOT the right approach for them.

Lesson: SIP suits people who have regular monthly income

Also Read: Which is the Best day for SIP in Mutual Fund?

SIP vs. Lump sum – Higher Returns?

Assuming that you have lump sum amount and still in two minds about – should you invest in one go or spread your investment as SIP? The underlying question being which investment option would offer higher returns?

To answer this we give you following five market situations from the year 2000 and see how SIP compares to the lump sum investment.

  1. Constant Declining Market
  2. Constant Rising Market
  3. Declining and then Rising Market
  4. Rising and then Declining Market
  5. Volatile Market

Here are some assumptions:

  • Rs. 60,000 is invested in both lump sum and SIP and is used for buying SENSEX.
  • Since the cash flow structure for the two is different, to make it comparable we assume that SIP investor puts the entire amount in a debt fund and starts systematic transfer plan (STP) to the equity fund.
  • The above debt fund gives a return of 8% per annum.

Also Read: 13 Common Myths about SIP in Mutual Funds

Constant Declining Market (Dec 2007 – March 2009)

SIP vs. Lump sum - Constant Declining Market
SIP vs. Lump sum – Constant Declining Market

As the market is declining, you would loose money in both SIP and lump sum investment but the loss in case of SIP is lower than Lump sum investment. So SIP wins in case of Constant Declining Market.

Constant Rising Market (Jan 2005 – December 2007)

SIP vs. Lump sum - Constant Rising Market
SIP vs. Lump sum – Constant Rising Market

Both kind of investment gives positive returns, but SIP would never be able to beat Lump Sum in case of Constant Rising Market. So Lump Sum wins in case of Constant Rising Market.

Also Read: How are Mutual Funds Taxed?

Declining and then Rising Market (January 2000 – November 2003)

SIP vs. Lump sum - Decline and Rise Market
SIP vs. Lump sum – Decline and Rise Market

SIPs yield the best results if the market falls initially and recovers subsequently. The SIP investor gains because he gets to buy more units at lower levels.

Rising and then Declining Market (January 2006 – February 2009)

SIP vs. Lump sum - Rise and Decline Market
SIP vs. Lump sum – Rise and Decline Market

If the market rises initially and then declines sharply, the SIP investor will suffer bigger losses than lump sum investor.

Also Read: Why Investing in Mutual Fund NFOs is Bad Idea?

Volatile Market (August 2011 – August 2012)

SIP vs. Lump sum - Volatile Market
SIP vs. Lump sum – Volatile Market

The SIP route works well in volatile market, especially if the market breaks out and rises. The lump sum investor would gain too but marginally.

Lesson: SIP gives better return in case of Constant Declining Market, Declining and then Rising Market and in Volatile Market (which eventually breaks out & rises). The problem is at the time of investment you don’t know which phase of market you are in. So even though we know that which kind of market SIP is better we cannot actually use that information for making investment.

Also Read: Mutual Funds to Park money for Short Time

How should you invest?

If you are salaried or have a constant income every month, you should go for SIP as that matches with your cash flows. For money you got as bonus or proceeds from existing investment or gift, you can invest in SIP or lump sum depending on your comfort level and understanding of market. If you think the market is under-valued (Low PE is one such metric) you can go with lump-sum while in over-valued market (like present situation) you might want to invest in Debt Fund and DO STP (Systematic Transfer Plan) in equity fund.

Even while regular SIP you should make occasional Lump sum investments in months/periods when there is sharp fall or market in under-valued (as analysed by you). To conclude there is NO definite winner between SIP vs. Lump sum but SIP & Lump sum investment together with some sensible market time is the way to invest!

9 thoughts on “SIP Vs. Lumpsum – Which is the Best way to Invest in Mutual Fund?”

  1. I think Multi cap is better for long term investments(>7 yrs) ..You can chose any 2

    UTI Equity Fund
    Mirae Asset Equity Fund
    Principal Multi cap
    Motilal Oswal multicap 35

    Mirae Asset emerging Bluechip & Reliance small cap too good if you can take more risk.


  2. Hi Amit I hope you are doing well

    Do you have any post on best mutual funds in 2018 or best SIP mutual funds in 2018 if yes please share that link

  3. Hi Amit,

    Thanks for great articles.

    I request your guidance on following query.

    I have opened Sunkanya Samridhhi Account for my one old baby-girl. I am investing 9000/month. I am exceeding 80C limit from past 2 years.

    I have one more SIP of 3000 in LIC which I can’t close now.

    No other investments or EMIes.

    So considering very long time period, I want to invest on MF instead of SSA. I have account in ShareKhan as well as CAN from MFUtilities, however I am not able to find best MFs.

    Could you please help me with this? Should I invest entire 9000 in one MF or multiple MFs with 2000-3000?


  4. The topic on SIP and lumpsum comparison is good and quite knowledgeable. But mutual funds are long term instruments say for 5 years or many more and not meant for 1-2 years as shown in the text. This comparison misleads ignorant investors and gives them the impression that either way of investing is good for investors as long as investing is concerned. No doubt many lumpsum funds have scored better than SIPs in the long run. But everyone forgets that markets are always volatile both in short term as well as long term.What happens to lumsum in such volatile markets when lacks of rupees are reduced to few thousands? In such a market everybody fails to describe the disadvantages of lumpsum over SIP.Why not compare lumpsum over SIP in a period of 10-15 years, and draw out your own conclusions about which scored higher. Also consider balance amount kept in bank in case of SIP giving yield of 3% p.a. and add it to SIP fund value over a period of years.

    1. The data for Indian stock market is available for 30 years. People can selectively take data and prove anything they want. The post just tries to inform investors that SIP or lumpsum is not the only way to invest and both have their pitfalls. The ideal strategy for investors with regular income is to have SIP for long term and keep topping it with lumpsum investment when they have money or when they feel the stoc market is under-valued!

  5. i m a new investor,i want to go for NPS but ur answer stopped me.So i decided to go for Mutual funds.I think Sip will ok as i m salarised person.Sholud i go for SBI mutual funds ,Plz tell if i m right or wrong or some other mutual funds as i want long term investment of round 60000/- anually.

    1. You should go for a robo advisory platform as most of them provide advice online which is free. My favourite is as they provide deep analytics and help me in fund selection. Other platforms don’t have analytics like Invezta. This is because Invezta has been providing softwares to top fund managers in the company and comes with years of experience in the field.

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