SIP vs lump sum: which is better for your first crore?

SIP vs lump sum: the simple difference

A lump sum is one amount invested at once. A SIP is a smaller amount invested every month. Both aim for the same crore. They differ in how much cash you need and how the risk feels.

What each needs for ₹1 crore

At 12% for 15 years, one amount of about ₹18,27,000 invested today becomes a crore. The SIP route needs about ₹21,100 every month instead, which adds up to ₹37,98,000 over 15 years. The lump sum is cheaper in total because it starts growing on day one, but few people have it ready.

When a SIP fits

• You earn a salary and save a bit every month.
• You do not have a large sum.
• You want to avoid guessing the right day to invest. The SIP buys at all prices, high and low.
• You prefer a habit that runs on its own.

When a lump sum fits

You have a bonus, a sale of property or old savings that are not part of your emergency fund, and you have a long time. The money starts working from day one.

The risk with a lump sum

If you invest a large sum right before a market fall, the loss shows up immediately and can be hard to sit through. A SIP spreads that risk across many months. Some people split a lump sum into six or twelve monthly parts, which is a simple way to get the best of both. Whether this suits you depends on your situation, so think about how you would feel if the balance fell 20% in the first year.

Why a SIP can buy at a lower average price

Fund prices move up and down. A SIP buys more units when the price is low and fewer when it is high. Here is a made-up six month example where the price falls and then recovers.

Over the six months, you invest ₹60,000 and own 638.1 units. Your average cost per unit is about ₹94.0, below the average of the six prices (₹95.0). Someone who put the whole ₹60,000 in at month 1 would own 600.0 units at ₹100. This effect is the reason people like SIPs. It does not protect you from falls, and prices can keep falling for years.

In this made-up example prices fell first, which favours the SIP. If prices had risen steadily from month 1, the lump sum would have won.

The in between option

If you have a lump sum and worry about timing, you can park it in a safe fund and move a fixed part into equity every month for 6 to 12 months. Many platforms call this an STP, a systematic transfer plan. It reduces the chance of putting everything in just before a fall, at the cost of keeping some money out of the market for a while. The better choice depends on your time frame and how you handle falls.

A quick way to decide

• Do you have a lump sum you will not need for 10 years or more? Consider putting most of it in now, or in 6 to 12 parts.
• Do you only have monthly income? Use a SIP.
• Do you have both? Do both.
• Would a 25% fall in year one make you sell? Then start smaller, and use the staggered route.

Do not time the market

Waiting for the right moment to invest sounds smart, but nobody can predict it. Many people who wait for a dip miss the rise. A steady plan beats a perfect guess.

The best answer for most people: both

Put the lump sum to work, and keep the SIP running. Here is how much the monthly amount falls when you start with a lump sum, for a crore in 15 years at 12%: with nothing, ₹21,100; with ₹5,00,000, ₹15,300; with ₹10,00,000, ₹9,600.

Then follow the plan in how to build your first 1 crore.