Are SIP investments always more profitable than lumpsums?

sip vs lumpsum
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Systematic Investment Plans (SIPs) allow investors to invest small amounts regularly into mutual fund schemes to potentially create long term wealth. The SIP method is a popular option among new investors who are not well versed with timing the market or do not have large amounts to invest in mutual funds. However, many investors wonder if they are missing out on tapping into the full potential of the market when they deploy the lumpsum or SIP investment strategies.
So, let’s try to find out the answer to the universal question: “Are SIPs always profitable than lumpsum?”

  • Table of contents
  1. SIP vs lumpsum: Which is better?
  2. When to choose lumpsum investment?
  3. When to choose SIP investment?
  4. FAQ

SIP vs lumpsum: Which is better?

Lumpsum and SIP investments both help investors generate potential earnings from market movements. However, both have their advantages and limitations. They work better in certain situations than others, such as:

In a rising market:  By simple laws of mathematics, you can easily guess why a lumpsum investment would be better than SIPs in a bull market for the same investment amount. In the SIP vs lumpsum battle, lumpsum can be a desirable option simply because the whole amount starts earning from the get-go whereas in the SIP investment, the total amount accumulates slowly over the time with each passing instalment. You can calculate the estimated returns from your investment by checking out the online SIP calculator and lumpsum calculator.

In a falling market:  SIP investments can turn out to be relatively suitable in a bear market for the same investment amount as compared to lumpsum investments. The main factor that affects the returns, in this case, is ‘rupee cost averaging’. When the prices are going down, the SIP investment amount for each instalment can buy more units. Whereas the lumpsum invested in the beginning, when the cost of buying the mutual units is higher, may turn out to be less profitable.

Considering risk and other factors for mutual fund investment: SIPs usually have relatively lower risk factor since the investment is made over a time period instead of putting it in one go. The other factors favouring SIPs include the low-stress factor associated with investing via SIPs since there is no need to time the market or even keep a close watch on the market to actively manage the portfolio. Also, SIP investments help inculcate the habit of investing money regularly.
However, this does not mean that you should never opt for a lumpsum investment.

When to choose lumpsum investment?

You can choose to make a lumpsum investment whenever you have a large sum of surplus money, whether it is an annual bonus, money you receive as a gift, or the idle cash in your savings account. However, if you invest in a lumpsum manner, then you may have to time the market for better return potential. If you are a newbie, then you may need to do a lot of research to understand the suitable time to enter the market.
Alternatively, you can choose to invest in short-term debt funds instead of equity funds since they carry low risk. You can set up a Systematic Transfer Plan (STP) from your debt fund to tap into the equity market. In an STP, certain amount from your lumpsum investment in debt funds will be periodically transferred into an equity mutual fund. This investing strategy can help you get reasonable returns from your debt investments while also participating in growth potential of equity schemes. You may not need to time the market in this case.

When to choose SIP investment?

Investors who do not wish to wait until they have a considerable sum of money to make a lumpsum investment, and investors with a low-risk appetite can start their mutual fund journey with SIPs.
Most mutual fund houses offer Systematic Investment Plans with instalments as low as Rs. 500 or Rs. 1000. Since equity markets are considered high risk, SIP investments can help investors as a preferred investment option. The good thing about an SIP investment is that the entry bar is low, the risk is not high if the tenure is long, you can benefit from rupee-cost averaging, and the potential of earning long term returns is relatively better.

SIPs may not always be more profitable than lumpsum investments. Both lumpsum and SIP investments have their pros and cons, and you must choose one over the other depending on your financial needs. The actual returns depend on the market movement, investment horizon, investor’s investment goals and strategy among other things. Additionally, you can choose to divert the lumpsum invested in low-risk debt funds to relatively high-risk equity funds by going for a Systematic Transfer Plan.


Can I combine SIP and lumpsum investments?

Yes, investors can choose to combine SIP and lumpsum investments for deploying their assets. These decisions should be made based on financial goals, objectives, and risk tolerance.

Should I ask a financial advisor before making a choice for mode of investments?

It is always advisable to seek financial guidance from a qualified advisor. A professional can always help you tailor your investment strategy. Asset allocation, investment horizons, and risk profile can be designed with the help of an advisor.

What determines the profitability of SIP and lumpsum investments?

Factors such as market conditions, investment duration and asset allocation determine the profitability of these investments. The performance of any investment depends on market conditions and other factors such as fund’s performance.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views / opinions or as an investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.