Two ways to invest

SIP and lumpsum: what they are and how each works

A SIP invests a fixed amount at regular intervals. A lumpsum invests one amount at one time. Both buy units of the same schemes and both carry market risk.

This page explains the mechanics of each route. If you are deciding which one to use, read SIP or lumpsum: how to choose.

Systematic Investment Plan

How a SIP works

You choose a scheme, an amount, a date and a frequency, and give your bank a mandate. On each date the amount is debited from your account. Units are allotted at the applicable NAV, which depends on when the money reaches the fund house relative to the cut-off time, so it can be the NAV of a later business day than the debit date. When the NAV is lower the same amount buys more units, and when it is higher it buys fewer.

When people typically use it

To invest from a monthly income without waiting to build up a large sum.
For long-term goals, where the habit of investing regularly matters more than the entry date.
When they do not want to decide every month whether it is a good time to invest.

A SIP can be stopped at any time by placing a cancellation request ahead of the next instalment date. Units already bought stay invested until you redeem them.

One-time investment

How a lumpsum works

You invest a single amount in a scheme. All the units are bought at one NAV, so the whole amount takes part in the market from the first day, in both directions.

When people typically use it

When they receive a larger sum, such as a bonus, maturity proceeds or the sale of an asset.
For money that is already sitting idle and has a clear purpose and horizon.
In lower-volatility categories, where the entry date matters less than it does in equity-oriented schemes.

Investors who are uneasy about putting a large amount into an equity scheme on a single day sometimes spread it out using a systematic transfer plan, described below.

A term you will hear

Rupee cost averaging, in brief

Each instalment of a SIP is allotted at the NAV that applies to it, so your purchase cost is spread across many market levels, and this is known as rupee cost averaging. It does not assure a profit or prevent a loss, as our article on choosing between a SIP and a lumpsum explains.

Related facilities

Step-up SIP: A SIP whose instalment increases by a set amount or percentage at a set interval, usually once a year, so that your investing can grow with your income. You can still stop or change it.
STP (Systematic Transfer Plan): Moves a fixed amount at regular intervals from one scheme to another scheme of the same fund house.
SWP (Systematic Withdrawal Plan): Redeems a fixed amount, or a fixed number of units, from a scheme at regular intervals and pays the proceeds into your bank account.

Availability, minimum amounts and any exit load vary by scheme and are stated in the scheme documents.

SIP and lumpsum side by side

Neither route is better in itself. The right one depends on where the money is coming from, your horizon and how you would react to a fall soon after investing. Many investors use both.

Aspect	SIP	Lumpsum
How you invest	A fixed amount at a regular interval, usually monthly	One amount, invested at one time
Where the money comes from	Regular income, such as salary	Money you already have, such as savings, a bonus or sale proceeds
Purchase price	Spread across many dates and NAVs	A single date and a single NAV
Effect of timing	Reduced, because purchases are spread out	Larger, because everything is invested on one day
Effort after set-up	Automatic until you stop it; needs enough balance in the bank account on each date	None for the purchase itself; any further investment is a new decision
Minimum amount	Varies by scheme; stated in the scheme documents	Varies by scheme; stated in the scheme documents
Market risk	Yes. The accumulated units rise and fall with the market	Yes. The full amount is exposed from the first day
Returns	Not guaranteed. Depend on the scheme and the market	Not guaranteed. Depend on the scheme and the market

Try the numbers

The SIP and lumpsum calculators show how an amount could grow at an assumed rate of return that you can change. The result is illustrative. It is not a forecast and does not represent any scheme.

Open the calculators

Risk disclosure: Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Past performance is not indicative of future returns. Mutual funds do not offer guaranteed or assured returns. Figures shown are illustrative, based on assumed rates that you can change, and are not a forecast of any scheme.

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