Comparing SIP returns with lump sum investments using a SIP calculator

As investors, we all want to maximize our returns while minimizing our risks. One of the debates in mutual fund investments is whether to invest in SIP or lump sum. While lump sum investments are one-time investments, SIP investments allow the investor to invest a fixed amount periodically. A SIP calculator is a tool that can help investors compare the returns of both investment methods.

SIP Investments: 

SIP investments allow investors to invest a fixed amount periodically as per their convenience, be it monthly, quarterly, or annually. The investment amount is automatically debited from the investor’s bank account on a pre-determined date. Investing through the SIP route ensures that investors invest and stay invested in the markets over the long term, which can compound returns and help achieve better returns over time. Check more on SIP Calculator. 

Lump Sum Investments:

Lump sum investments require investors to invest a lump sum amount in one go. Lump sum investments are often utilized when investors receive a windfall or have a large amount saved up.

Comparing SIP returns with lump sum investments using a SIP calculator

Using a SIP calculator, investors can compare the returns of both investment options. The calculator ensures that the estimated returns are based on realistic returns for the market and the mutual fund in question.

Let’s consider an example of an investor who wishes to invest Rs 12,000 in a mutual fund. The investor can choose to either invest the entire Rs 12,000 as a lump sum or invest Rs 1,000 every month through SIP, for 12 months.

Suppose the expected rate of return on the mutual fund is 12% per annum, and the fund has historically achieved an average return of 12% per annum over 5 years. Check more on SIP Calculator.

Case 1 – Lump sum investment

If the investor chooses to invest the entire Rs 12,000 as a lump sum, the future value of the investment, after 12 months, will be Rs 13,440.

Case 2 – SIP investment

If the investor chooses to invest Rs 1,000 every month through SIP, the future value of the investment, after 12 months, will be Rs 13,675. Check more on SIP Calculator.

As we can see, the future value of the SIP investment is slightly higher than in the case of the lump sum, by about Rs 235. However, it’s important to note that the returns are not guaranteed, as mutual funds are subject to market risks. Additionally, it’s important to keep in mind that if the investor wishes to invest the same amount over a longer period, the SIP investment can compound and lead to better returns over time. Furthermore, by investing periodically, investors can spread their investments across different market conditions, which can lead to a more balanced portfolio over time.

Another advantage of SIP investments is that they can help manage the risks involved in investing in mutual funds. Investing in mutual funds carries market risks, and the value of the investment can fluctuate based on market conditions. By investing through the SIP route, investors can average out their purchase costs, which can reduce the impact of market volatility on their investments.