SIP vs lump sum — how they differ
A SIP invests a fixed amount at regular intervals; a lump sum invests everything at once. Here is how they differ.
There are two common ways to put money into an investment. One is to invest a fixed amount at regular intervals, which is what a systematic investment plan, or SIP, does. The other is to invest a whole amount at once, which is called a lump sum. Neither is better in every case, and the differences are worth understanding.
How each works
A SIP moves a set amount, for example every month, from a bank account into a chosen fund. The purchases happen on many different dates, at many different prices. A lump sum is a single purchase on a single date, at that day's price.
What differs between them
- Timing of prices. A lump sum is exposed to one entry price. A SIP spreads purchases over time, so it buys at a range of prices and its average cost depends on how prices moved.
- Time in the market. A lump sum has all of its money invested from the first day. SIP money goes in gradually, so later instalments have less time to grow.
- Cash flow. A SIP fits money that arrives regularly, such as a salary. A lump sum needs a large amount to be available at once, for example from a bonus or a sale.
- Habit. A SIP builds a routine, which some people find easier to keep up than deciding on a date and an amount each time.
Which one came out ahead
That depends entirely on what markets did over the period in question. If prices rose steadily, money invested earlier did better. If prices fell and then recovered, spreading purchases could have done better. Looking back, one of the two looks wiser, but that is clear only after the fact.
Many people do both
Regular SIPs alongside occasional lump sums are common. A household might run a monthly SIP and add a lump sum when a bonus arrives.
How Mandala shows this
Mandala records each purchase as a transaction, so SIP instalments and lump sums sit side by side in the ledger. Holdings tagged as SIP carry the monthly amount, and the SIP summary groups them by goal. Returns are shown as XIRR, which respects the date of every instalment. A free SIP calculator on this site shows how a monthly amount grows under an assumed rate, as an illustration only.
See it live in Mandala
Related reads
Educational content only, not investment advice. Examples are illustrative, and nothing here is a recommendation to buy, sell or hold any product. Investments are subject to market risks.