Tool

SIP vs lump sum

Compare investing a sum all at once with spreading it over monthly SIP instalments, including what happens if the market falls in the first year.

Your inputs

Money you have now

SIP spreads it over

$1,000 a month. The rest waits in savings.

Compare after

Usual market return

Market in the first year

Try a fall, like -30%. That is the case where spreading it out pays off.

Savings rate while waiting

Ahead after 10y: Lump sum; by $1K
Lump sum: $32.3K; All invested today
SIP: $31.3K; Over 12 months
You put in: $12K; Same money both ways

Two ways to invest the same money

Lump sum
SIP

Both lines start with the same money. When markets rise, money that waits in savings misses out, so the lump sum pulls ahead. After an early fall, the SIP buys more cheaply and can catch up.

Method

How this works.

Lump sum: the whole amount grows from day one. SIP: amount ÷ months goes in at the start of each month, and the money not yet invested earns the savings rate. Both grow monthly; the first 12 months use the first-year return you choose.

What it assumes

Markets rise more often than they fall, so investing at once usually wins. Vanguard found a lump sum beat spreading it out about two-thirds of the time in US, UK and Australian market history.
A SIP protects you from investing everything just before a fall. That is worth something if a loss would make you sell in a panic.
This compares money you already have. If you invest from your salary each month, that is a SIP by necessity, and the monthly investing calculator fits better.
No taxes, fees or exit loads, and one smooth return after the first year. Real markets are lumpier.

Worked example

Invest $12,000 at once, or over 12 months with the waiting money in savings at 4%, then leave it for 10 years at 10% a year. In a normal first year the lump sum ends at about $32,346 and the SIP at $31,298. If the market falls 30% in the first year instead, the SIP comes out ahead: about $24,690 against $20,584.

Invest ₹10,00,000 at once, or over 12 months with the waiting money in savings at 4%, then leave it for 10 years at 10% a year. In a normal first year the lump sum ends at about ₹26,95,492 and the SIP at ₹26,08,189. If the market falls 30% in the first year instead, the SIP comes out ahead: about ₹20,57,539 against ₹17,15,313.

Learn the idea behind it

Terms used here: SIP, Dollar-cost averaging, Opportunity cost, Drawdown.

Every number here is a simplified illustration based on the inputs you choose. Returns are not guaranteed and real markets vary, sometimes a lot, year to year. This is education, not financial advice.