SIP: In recent days, you can see hear lots of buzz for SIP in newspapers, television, digital media, and other channels. SIP stands for Systematic Investment Planning. You invest a set sum at regular intervals over an extended period, and thanks to compounding, your total investment grows into a substantial fund. However, besides SIP, there exists another method to invest in mutual funds that people are aware of, yet it is seldom discussed. This approach to investing in mutual funds is a one-time payment. In this, you invest a one-time amount in the fund and allow it to grow.
Let’s make a comparison
SIP: Monthly contribution- Rs 5000, Anticipated return- 12%, Duration- 10 years. Thus, your overall deposit amount stands at Rs 6 lakh. In a decade, you will receive a total return of Rs 5,61,700 from this. Your overall fund after adding the deposit sum and return is Rs 11,61,700.
Lumpsum: Lumpsum investment- Rs 6 lakh, Anticipated return- 12%, Duration- 10 years. In this approach, your total deposit stayed consistent with what you had invested in SIP over the 10-year period. However, in this case, the return was being earned on Rs 6 lakh from the very first day, making the anticipated return after 10 years Rs 12,63,500. In other words, the combined total of your investment and returns reached Rs 18,63,500. It is evident that you achieved a profit of Rs 7 lakh as a one-time payment.
Which is more profitable?
If you place the equivalent amount for the identical duration in any mutual fund from these two options that provide the same returns, then Lumpsum is the better choice. The straightforward explanation for this is that with Lumpsum, you begin to receive the same returns on a significant sum right from day one, while in SIP, it may take a few years before you see similar returns.
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