SIP vs Lumpsum Calculator

A fair test between SIP and lumpsum

Most SIP and lumpsum calculators look at one at a time, which makes them hard to compare: a ₹10,000 monthly SIP and a ₹5,00,000 lumpsum are not the same commitment. This page fixes the total. Whatever your SIP adds up to over the period, the same amount is treated as invested in one go on the first day. Both grow at the same yearly return. The only difference left is timing, which is exactly what the choice between SIP and lumpsum is about.

How to use it

1. Enter the monthly SIP amount and the number of years. The total invested is shown for you.
2. Enter the yearly return you want to assume. Try a cautious figure and a hopeful one, not just one.
3. Read the end values and the chart. The dashed line is the money paid into the SIP so far, so the gap above it is the SIP's gain.

The formulas

Let R be the yearly return as a decimal, P the monthly SIP, n the number of months and Y the years. The calculator uses the monthly rate that compounds to exactly R in a year, i = (1 + R)^(1/12) - 1, so both options earn the same yearly return and neither gets an edge from the way the rate is split.

• SIP, paid at the start of each month: FV = P x ((1 + i)^n - 1) / i x (1 + i)
• Lumpsum of the same total, P x n, invested on day one: FV = P x n x (1 + R)^Y

Many SIP calculators, including the plain SIP calculator on Ur Next Door, use R / 12 as the monthly rate. That compounds to a little more than R over a year, so their SIP figure is slightly higher than the one here for the same inputs.

A worked example

A SIP of ₹10,000 a month for 10 years is ₹12,00,000 paid in. At an assumed 12% a year, the SIP grows to about ₹22,40,359, a gain of ₹10,40,359. The same ₹12,00,000 invested on day one grows to ₹37,27,018, a gain of ₹25,27,018. In this example the lumpsum ends ₹14,86,659 ahead. Using R / 12 instead, the SIP would show ₹23,23,391, which is why numbers differ between calculators.

So should everyone invest a lumpsum?

Not necessarily. With a steady, positive return the lumpsum always wins, because all of the money is invested for the whole period while the last SIP instalment is invested for just one month. Real markets are not steady. If prices fall soon after you invest, a lumpsum takes the full hit, while a SIP keeps buying at lower prices. More importantly, most people do not have the whole amount on day one: a SIP is how a salary turns into investments month after month. The fair question is usually not SIP or lumpsum, but what to do with a sum you already hold, and this calculator shows how much waiting can cost when returns are positive.

Assumptions and limits

• The return is constant every year. Actual returns vary, and they can be negative.
• No expense ratio, exit load, stamp duty or tax is deducted, and no money is withdrawn.
• SIP instalments are paid on the same day each month, starting today.