In today's times, mutual funds have become a popular investment option for wealth creation. The two most common ways to invest in mutual funds are the Systematic Investment Plan (SIP) and the lump sum investment. Many people wonder whether investing ₹5,000 monthly via SIP or investing ₹1 lakh as a lump sum would build a corpus of ₹20 lakh faster.
What is an SIP?
An SIP is a method where you invest a fixed amount in a mutual fund every month or at regular intervals. For instance, if you invest ₹5,000 monthly, that amount is regularly deployed into the mutual fund. The biggest advantage of an SIP is that it does not require a large initial capital; even individuals with lower incomes can start investing with small amounts and build a substantial corpus over time.
What is a Lump Sum investment?
A lump sum investment means investing the entire amount at once. If someone receives a large sum—such as a bonus, an inheritance, proceeds from a property sale, or funds from another source—they can invest that entire amount into a mutual fund in a single transaction. There is no need for monthly investments; instead, the invested capital grows over time.
When will a ₹5,000 SIP grow to ₹20 lakh?
If an investor starts an SIP of ₹5,000 per month and earns an average annual return of 12%, they can build a corpus of approximately ₹20 lakh in about 13 to 14 years. During this period, the total investment would be around ₹8 lakh, the earnings from interest and compounding would be approximately ₹12 lakh, and the total corpus would reach close to ₹20 lakh. In other words, the investor contributed only ₹8 lakh, while the rest of the amount grew through the power of compounding.
When will a ₹1 lakh lump sum grow to ₹20 lakh? If a person invests ₹1 lakh as a lump sum and earns an annual return of 12%, it could take approximately 26 years for this amount to grow to ₹20 lakh. Since no additional funds are invested monthly, the entire growth relies solely on the compounding returns generated by the initial ₹1 lakh investment.
Which method helps achieve the goal faster?
Based on this example, a monthly SIP of ₹5,000 could help you reach the ₹20 lakh goal in about 13–14 years, whereas a lump sum investment of ₹1 lakh might take around 26 years to reach the same target. The primary reason for this is that an SIP involves adding new investments every month; this continuously increases the total invested amount and maximizes the benefits of compounding. In contrast, with a lump sum investment, only the initial amount grows. If the initial investment is small, achieving a large financial goal may take significantly longer.
Points to consider before investing
SIPs are considered ideal for individuals who can save small amounts regularly each month. Lump sum investments may be suitable for those who already have a large amount of capital available. Returns from mutual funds are not guaranteed; the 12% return mentioned here is merely an estimate. Before investing, be sure to consider your income, risk appetite, and financial goals.
Disclaimer: This content has been sourced and edited from News18 Hindi. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.
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