Lumpsum formula
FV = P × (1 + r)n
Where P = principal (lumpsum), r = annual return rate (decimal), n = number of years.
Lumpsum vs SIP
| Factor | Lumpsum | SIP |
|---|---|---|
| Investment | One-time, large amount | Small, monthly |
| Market timing risk | High (all-in at one point) | Low (averaged over time) |
| Best in rising market | Higher returns | Lower returns |
| Best in volatile market | Risky | Better (averaging) |
| Ideal for | Bonus, inheritance, windfall | Regular income earners |
FAQ
When should I invest lumpsum vs SIP?
Invest lumpsum when you have a large amount (bonus, inheritance) and the market is at reasonable valuations. Use SIP for regular savings from salary. Many advisors recommend splitting a lumpsum into STP (Systematic Transfer Plan) to reduce timing risk.
What is STP?
STP (Systematic Transfer Plan) parks your lumpsum in a liquid/debt fund and automatically transfers a fixed amount to an equity fund monthly. It combines lumpsum deployment with rupee-cost averaging.