Analysis: 10-year Lump sum vs 10-year SIP returns

What if we took the 10-year lump sum returns of several equity funds and plotted them against their corresponding 10-year SIP returns? What could we possibly learn from such a comparison. If you are are interested to find out, read on.

Just to be clear,  this is not about, 'which is better: lump sum or SIP?'. I am not interested in answering meaningless questions. If I had a lump sum and can afford to invest it for a long-term goal, I will invest it either in one go or 2/3 installments. I will supplement that with periodic monthly investing if I can help it. If I did not have a lump sum, I will not bother asking the above question. As simple as that. If you are interested to read more, check out, How to invest a lump sum in an equity mutual fund?

To be frank, I had no specific aim except that I wanted to do a couple of posts on 'do not get married to your SIPs'. I just wanted to compare said returns and see what comes out.

10-year Lump sum vs 10-year SIP returns

The large-cap, mid-cap, multi-cap, small-cap, ELSS and balanced fund 10-year lump sum and SIP returns from Value Research are plotted against each other.

10-year-lump-sum-vs-10-year-sip-returns The SIP returns are in the y-axis and range from 4% to ~19%. Many advisors use this to point out fund selection matters.

Since there is no way to predict 10 years ago which fund would have given 'good returns'*, this spread has nothing to do with fund selection.

This only tells us that one should not get married to our SIPs. If we wish to subscribe to the idea of periodic investing, monitoring the investment and switching funds ruthlessly, but objectively** is essential. Fund switching is a personal exercise and star ratings will not help (here I go again!).

* There are very few duds and very few exceptional performers. More on this later.

** Objectively excludes asking 'what to do?' at FB group, Asan Ideas For Wealth.

It is unfortunate that many treat mutual fund investing like paying LIC premiums and ask/state, "suggest funds I can invest in for the next 15 years" or "I plan to do an SIP in XYZ fund for next 10 years".

The ability to select funds with a specific process in mind is important. However, since we have no control over the future, more important is the ability to objectively review performance and take action. This again is not rocket science.Read more: How to review a mutual fund portfolio.

Periodic investing will work, but not always in the same fund! Of course, I could have take 15 or 20-year returns and showed that the handful of funds with such an age have all given double-digit returns. This means little as the next 15/20 years may not resemble this due to the number of funds that we have now.

Naturally, much of the mutual fund industry would like investors to start an SIP and not stop 'no matter what'. Which is why they make stopping SIPs tougher than starting one. I am willing to wager that many SIPS run because of inertia - due to the difficulty involved in stopping one. This is often incorrectly interpreted as 'increase in financial literacy'!!

Sorry about rambling on. Had to get that off my chest.  Now back to the graph.

The blue vertical lines represent the spread in SIP returns for a given lump sum return (10% and 12%). The horizontal green lines represent the spread in lump sum returns for a given SIP returns (10% and 12%). I do not wish to read too much into these spreads except to point out that they exist.

1) Notice the upward slope. A 'good' lump sum return (CAGR) typically implies a 'good' SIP return (XIRR). Read more: Understanding Annualized Return: CAGR and XIRR.

2) A high lump sum return implies the final NAV is much higher than the initial NAV. SIPs will work only when the fund or the index moves north. Read more: Rupee Cost Averaging in a Sideways Market.

The x-axis represents the percentage growth in NAV corresponding to the CAGR. That is, how much the final NAV has grown, compared to the initial NAV.


  1. SIPs will work only if the markets (specific funds in this case) head north.
  2. Fund review is essential.
  3. Do not get emotionally attached to your SIP.
  4. If you are too lazy to stop a SIP be aware that there is
    • a small chance of getting a below 'average' return (more later).
    • only a small chance of getting an above 'average' return.

To be continued ...

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14 thoughts on “Analysis: 10-year Lump sum vs 10-year SIP returns

  1. Kamal Garg

    In Conclusion section, you wrote that "SIPs will work only if the markets (specific funds in this case) head north".
    Should it not be the other way round.
    Means that "Lumpsum will always work better if the markets head north and SIPs will work better if the markets head south initially and then head north eventually".
    For your clarification, please.

      1. Kamal Garg

        Lumpsum will get 'better' returns when market heads north.
        And SIP will also give 'good' returns when also market heads north.
        It means that lumpsum in a rising market would give you 'better' and 'more' returns than SIP during the same time frame.

          1. Kamal Garg

            But your Headline says :
            "Analysis: 10-year Lump sum vs 10-year SIP returns".
            Your Headline does not say that it is about "learning to review investments".

  2. V V

    then what is the conclusion? should we invest through SIP or Lump sum? I understand timing market is not easy.
    would you suggest if you have money say 10 lacs, just go ahead and put in MF (of course different fund house)?..

    can you please advise

    1. freefincal

      Conclusions are only those stated above. I am not interested in "should we invest through SIP or Lump sum?". However way you invest, review is important.

  3. Renga

    Dear Sir,
    With regards to Equity MF, how many yrs we should invest without review of performance? I remember reading one of your post suggest not to review the performance for atleast 5yrs?

  4. kalyan

    I don't understand the rational for comparing a lump sum returns and 10 year sip return. Generally we spread the lump sum to 2,3 to 12 installments and generally not more than that. So comparison should be lump sum invested in 2006 Jan and same invested in 2006 in 12 equal installments and their performance now. (I think you have done such analysis before).
    If I have 10 year sip, that means I am investing from my periodic income and so lump sum is not even option for me.

    1. freefincal

      A lump sum investment was made 10 years ago. A SIP was also started at the same time. The amount invested is not relevant.
      Today, after 1oY I compare the returns made in both. The chart tells you that if the lump sum did welll, so did the SIP. So that tells me all those installments do not matter much if the fund is down TODAY. SIPs will not work then.

      1. Kamal Garg

        It is a very simple thing. To make profit, your fund's NAV has to go up - irrespective of whether you invest through lump sum or through SIP.
        In a rising market, your average cost of holding will be more if investment done through SIP - again a very simple arithmetic.
        And similarly, in a falling market, your average cost of holding will be less if investment done through SIP v/s lump sum.


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