THE 5-YEAR-OLD VERSION
A lump sum is pouring the whole bucket of water in one go. A SIP (systematic investment plan) is a slow tap: a fixed amount every month. If the water level is about to drop, the slow tap wins. If the level keeps rising, the bucket wins.
The test
We invested a total of the same money two ways: (a) SIP of ₹10,000 on the first trading day of each month, and (b) a lump sum of the same total on day one. Values are counted at the last month's level. Same market, three different windows:
| Window | You invest | SIP ends at | Lump sum ends at | What the market did |
|---|---|---|---|---|
| Jan 2008 to Dec 2009 (24 months) | ₹240,000 | ₹306,712 (+28%) | ₹200,067 (-17%) | a falling-then-recovering market |
| Jan 2017 to Dec 2018 (24 months) | ₹240,000 | ₹259,222 (+8%) | ₹319,347 (+33%) | a mostly rising market |
| Jan 2014 to Dec 2018 (60 months) | ₹600,000 | ₹759,049 (+27%) | ₹1,049,685 (+75%) | five years of mostly rising prices |
In the 2008 to 2009 window the SIP finished ahead because it kept buying while prices were low. In the two rising windows the lump sum finished far ahead because all the money was working from the start.
How to read this honestly
We chose windows that show both outcomes. Based on closing levels of the price index, with no costs or tax. A SIP ends with less in the rising windows partly because most of its money was invested later, not because it is a worse idea.
So which is better?
- If the market rises on average, a lump sum usually wins, because money invested earlier has longer to grow. But you only know that afterwards.
- A SIP matches how most people earn: a salary every month. You rarely have a big lump sitting idle.
- A SIP removes the hardest decision, "is now the right time?", and builds a habit. For many people that is worth more than the arithmetic.
- If you do have a lump sum, a common middle path is to invest it in parts over some months. That is a personal choice, not something we can recommend.
Want to feel the difference? The replay lab has an auto-invest option and compares you with both strategies at the end.