SIP vs lumpsum: what is the difference?
Updated 11 October 2026
A SIP and a lumpsum are two ways of putting money into a mutual fund scheme. With a SIP (systematic investment plan) you invest a fixed amount at a fixed interval, usually every month. With a lumpsum you invest the whole amount in one go. The scheme, what it holds and what it costs are the same either way. What changes is when your money goes in, and that changes both the result and the risk.
How each one works
Every rupee you put into a scheme buys units at that day’s NAV (net asset value, the price of one unit). A lumpsum of ₹6,00,000 at a NAV of ₹50 buys 12,000 units on one day. A SIP of ₹5,000 a month buys a different number of units each month: more when the NAV is low, fewer when it is high. The instalment leaves your bank account through an auto-debit mandate on the date you pick.
Say the NAV is ₹50 in the first month, ₹40 in the second and ₹50 in the third. ₹5,000 a month buys 100, then 125, then 100 units: 325 units for ₹15,000, an average cost of ₹46.15 a unit, a little below the average NAV of ₹46.67. This is what people call rupee cost averaging. It does not make a loss impossible. It only means you never put everything in at the single worst price.
The same ₹6 lakh two ways
Take ₹6,00,000 and 10 years, and suppose the scheme returned 12% a year, every year. Real returns go up and down; a steady rate is only for comparing.
| SIP: ₹5,000 a month | Lumpsum: ₹6,00,000 at once | |
|---|---|---|
| Invested | ₹6,00,000 over 120 months | ₹6,00,000 on day one |
| Value after 10 years | ₹11,61,695 | ₹18,63,509 |
| Gain | ₹5,61,695 | ₹12,63,509 |
The arithmetic: the lumpsum is ₹6,00,000 × 1.12^10 = ₹6,00,000 × 3.10585 = ₹18,63,509. The SIP is ₹5,000 × [((1.01)^120 − 1) ÷ 0.01] × 1.01 = ₹5,000 × 232.339 = ₹11,61,695, with 1% as the monthly rate.
The lumpsum ends far ahead, and the reason is time: all ₹6 lakh is invested for the full 10 years, while the SIP’s last instalment is invested for one month. On average, SIP money is in the market for about half the period.
Two things make the comparison less one-sided than the table looks. First, most people do not have ₹6 lakh on day one. They have ₹5,000 a month from a salary, and the real choice is a SIP or nothing. Second, the lumpsum’s result hangs on one entry date. If prices fell 20% the month after it went in, the ₹6,00,000 would be worth ₹4,80,000, and it would need a 25% rise just to get back to where it started. A SIP that began the same month would keep buying at the lower prices.
Side by side
| SIP | Lumpsum | |
|---|---|---|
| Beginner friendly | Yes: starts small, often a few hundred rupees a month, and runs on its own | Needs a large amount ready, and a decision about when to put it in |
| Flexibility | Pause, raise, lower or stop the instalments | One decision; adding more later is a new lumpsum |
| Volatility and risk | Spread over many prices, so one bad day matters less | All at one price, so the result swings more with the entry date |
| Entry timing | Matters little, because the purchases are spread out | Matters a lot, especially over short periods |
| Cash flow | Fits a monthly income | Fits money that arrives at once, such as a bonus |
When people pick one or the other
- A monthly salary fits a SIP: the instalment goes out just after pay day, before the money gets spent.
- A bonus, an inheritance or the money from a sale fits a lumpsum, since the money is already there.
- A large amount and a worry about timing: a middle way is to park it in a liquid or debt scheme and move a fixed amount into the equity scheme every month. Fund houses call this a systematic transfer plan (STP). ₹6,00,000 moved at ₹50,000 a month goes in over 12 months.
Neither is better in every case. Over long periods in which markets rise more often than they fall, money invested earlier has more time to grow, which favours the lumpsum. Over a period with a sharp fall early on, spreading the entry helps. Nobody knows in advance which kind of period is coming.
Tax is the same for both
Tax depends on the kind of scheme and how long each unit was held, not on how you bought it. For equity-oriented schemes, units sold more than 12 months after purchase pay 12.5% on long-term gains above ₹1.25 lakh a year, and units sold within 12 months pay 20% on the gain. Units of debt funds bought on or after 1 April 2023 are taxed at your slab rate.
One difference in practice: with a SIP, every instalment has its own purchase date, so its own 12-month clock. Units are sold first in, first out, so if you sell the whole holding two years after starting a SIP, the units from the last 12 instalments are still short-term. Ask a chartered accountant about your own case.
What both leave out
Neither way of investing changes what the scheme holds, its expense ratio (already inside its published returns) or the risk of the market. A SIP is a habit, not a shield: if the market falls for years, the SIP’s value falls with it. Calculators, including these, assume the same return every year. Real returns vary, and they can end below what you put in.
Try your own numbers with the SIP calculator and the lumpsum calculator. To see how an amount built with a SIP can later pay a monthly income, read SIP vs SWP.
Questions people ask
- Can I do both a SIP and a lumpsum?
- Yes. Many people run a monthly SIP from their salary and add a lumpsum when a bonus arrives. Work out each with its own calculator and add the results.
- Is a SIP safer than a lumpsum?
- A SIP spreads the entry price over many months, so a single bad day matters less. It does not remove market risk: the value can still fall below what you invested.
- What if the market falls right after my lumpsum?
- The whole amount falls with it and needs a larger rise to recover: a 20% fall needs a 25% rise to get back. Moving a large amount in over several months, with an STP, reduces that timing risk.
- Does a SIP guarantee returns?
- No. A SIP is only a way of investing at regular intervals. What it earns depends on the scheme and the market, and no scheme promises a return.