Lump sum vs SIP investing in mutual funds: Which is “better”?

Published: September 28, 2017 at 2:30 pm

Last Updated on

Lump sum vs SIP investing: Which is “better”? You might have heard this question often in personal finance forums. Perhaps you have thought about this yourself. In this post, let us trace the month-by-month return from a SIP investment and a lump sum investment started on the same date. What is the point of this study?   If you ask my personal opinion, I would say the question is, in of itself meaningless, and therefore so are the results.

Why is the titular question meaningless? Well, we can only invest if we have money and when we have money. If I do not have a lump sum (and this means I can properly define what a lump sum is), then I don’t care about this question. If I do have a lump sum, then I should ask, “is there any benefit in spreading that lump sum over a few weeks, months or years (some recommend this!), instead of putting it into the market all at once?”

If I do have a lump sum, then I should ask, “is there any benefit in spreading that lump sum over a few weeks, months or years (some recommend this!), instead of putting it into the market all at once?” More than 4 years ago, I had shown there is not much difference between a lump sum and investing it over a few weeks or months (STP):  Comprehensive Mutual Fund Investment Mode Comparator. Amusingly this is true whether this is true over the short-term or long-term!

I wrote my first Excel macro for the above post and today I have much computing ability to do a far more extensive study, but is it even necessary?! Maybe I will get around to it. For now, let us stare at a few lump sum vs SIP graphs.

In the following, the total investment amount is the same, but it is irrelevant as we will only focus on how much the returns vary month after month. That is, we will address the question of which lowers volatility better – the SIP or a lump sum. If the SIP is done for a year or so, then we usually call it an STP.

I have shown several times before that a SIP does not reduce investment risk in any way:  Beware of Misinformation: Mutual Fund SIPs Do Not Reduce Risk!

Mutual fund houses and their sales guys aka “advisors” want you to believe just that because the SIP is a fantastic way to guarantee a regular income.

Let us see yet another proof of this.

Lump sum vs SIP: 11 years

Month after month returns (CAGR for a lump sum and XIRR for SIP) are shown for investments in Quantum Long Term Equity Fund from April 3rd 2006.

lump sum vs SIP investing mutual fund

Obviously, no one will invest a lump sum they received in April 2006 as an SIP for the next 11 years. From that point of view, this graph makes no sense. I only wish to drive home the idea that “over the long term”,

(1) the risk of a lump sum and that of a SIP is not very different. For the above case, this is true even over the short term.

(2) We are all dead

Join our 1200+ Facebook Group on Portfolio Management! Want to know how to reduce fear, doubt and uncertainty while investing for financial goals? Sign up for our lectures on goal-based portfolio management and join our exclusive Facebook Community

Lump sum vs SIP: 1 year

If we now jump to the other extreme for a SIP and lump sum started on April 3rd 2016, we get the following picture.

Please do not waste your time worrying about: which offers better returns – lump sum or SIP/STP. That will depend on market movements. For example, if we could foretell, the market will move up by 40% in the next year and you have about a Lakh to invest, will you dump it all in or do an STP worried about volatility?

On the other hand, if on the other hand, we could foretell that the market will only move up and down for the next year, how will you invest that one lakh?

The point is, that we cannot foretell and therefore do not know whether a lump sum is better or a SIP/STP.  It is only in hindsight that we can know and is not of much use.

If you have a lump sum and want to know how to invest it, please consider reading: How to invest a lump sum in an equity mutual fund?

Now to complete this post, let me post some more pictures and will leave the impressions to you.

Lump sum vs SIP: 3 years

Lump sum vs SIP: 5 years

Lump sum vs SIP: 7 years

Do feel free to enter your thoughts in the comment form at the end of the post.

Something to read in the weekend: Swapnil Kende who is on the verge of becoming a SEBI registered fee-only financial planner writes about: Why Fee Only Model of Advisory (from an Adviser’s perspective)

Do share if you found this useful
Join our 1200+ Facebook Group on Portfolio Management! Want to know how to reduce fear, doubt and uncertainty while investing for financial goals? Sign up for our lectures on goal-based portfolio management and join our exclusive Facebook Community

Hate ads but would like to support the site? Subscribe to our ad-free newsletter and get beautifully formatted full articles delivered to your inbox!

About the Author

Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice.
He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com

About freefincal & its content policy

Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. We operate in a non-profit manner. All revenue is used only for expenses and for the future growth of the site. Follow us on Google News
Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any kind of paid articles, promotions or PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)

Connect with us on social media

Our Publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingThis book is meant to help you ask the right questions, seek the right answers and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.

Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want

Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner

Your Ultimate Guide to Travel


This is a deep dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when traveling, how traveling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)  

Free Apps for your Android Phone

Comment Policy

Your thoughts are the driving force behind our work. We welcome criticism and differing opinions.Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete the entire comment or remove the links before approving them.


  1. Testimonial – Done Prof.Pattu (probably the first time I did such a thing, but I am glad I did it for freefincal). Thankyou so much for enlightening us readers. Kindly keep sharing.

  2. I do not have a face book account and therefore I cant post the Testimonial I wrote. THis is for you to read.

    From the time I discovered Pattu’s FreeFincal, it has become a “GO TO” place for me for any matter connected with Personal Finance. I expect here, “Yatha-Bhoot-Gyan-Darshan” that “to see reality of financial matters/schemes/products/ratings as it is”. Practical, Grounded, Data and Graphics based analysis and yet no hand holding or spoon feeding. A truly DIY training available here for the ones who wish to take the path. Should you happen to pass by our home at dinner time, on some evenings you are likely to hear, “Pattu says that there is no difference between SIP and Lump Sum and he shows it graphically” or some such thing. The best tool I acquired at FreeFincal is the understanding of Standard Deviation.

  3. Lump sum is risky for guys who dont hve equity knowledge .thy may invest lump sum when market was at pick where as in case of SIP thr is no such issue.thy can remain free mind

    1. Thank you. You don’t need to log in. Just need to login into Facebook (if you have an account) and write a comment there like others have done.

  4. SIP contributions are made in future cash terms whose present value will be considerably less.
    I am of the opinion that SIP allows you to dollar cost average the entry points, which definitely averages the net price per unit of the asset.

    In this case, a lumpsum if put in a liquid fund with periodic transfers (STP) gives better risk adjusted returns.

    Please confirm if you have a different opinion.

    1. I trust data over opinions. There is no credible evidence to show that STP is better than lump sum for the long term investor. See the links in the post.

  5. Sir,
    Lumpsum vs STP question generally applies to newbie investors for 2 reasons, 1) they may have decent amount of money lying in bank account and they decide to invest one day. 2) they are quite new to equity investing.
    So I guess for them it’s as important as asset allocation to everyone.
    Returns might not be significantly different in case of STP but peace of mind will be better. I guess not everyone will feel bad if they miss a bull market by not investing lumpsum but most will feel bad if the market tanks 50% after investing lumpsum.
    STP any day for newbies, anything for seasoned investors who already have a few lakhs invested

  6. It is not true, there are lumpsum funds available due to asset sales, maturity of other investments, profit sharing/bonuses in certain cases, even pure procrastination leads to lump sum accumulation !

  7. My sincere Apologies for not writing the testimonial Professor. For some reasons I could not use Facebook and cannot register in Indiblogger as I am not a Blogger.

    “Without your Articles and Advice, my Financial journey would have been tough. Thank you for making it Easy and Beneficial.”

    I wholeheartedly wish you win the Award.

Leave a Reply

Your email address will not be published. Required fields are marked *