SIP vs Lump Sum: A Detailed Comparison

• SIP offers rupee cost averaging. When NAV is high, fewer units are purchased. When NAV is low, more units are purchased. Over time, this averages out entry prices.

• SIP absorbs volatility. Instead of experiencing a full drawdown immediately, the investor enters gradually, helping reduce the impact of market swings during the deployment phase.

• SIP enforces behavioral discipline. Automating monthly investments removes hesitation and reduces the urge to time the market.

• Lump sum offers immediate market participation. No portion of capital sits idle in low-return instruments while waiting to deploy.

• In rising markets, full exposure from day one captures upside.

• When valuations are reasonable or after corrections, lump sum capitalizes on entry timing.

• The trade-off is clear: full deployment provides immediate market exposure, which may involve short-term volatility if markets correct after investment.

• First-time equity investors or those with low volatility tolerance may find SIP reduces emotional stress during deployment.

• When markets are near all-time highs or valuations feel stretched, SIP removes the pressure to time the entry.

• Long-term goals funded through monthly income, such as salary-driven investing, naturally align with SIP.

• Investors who tend to pause or stop during market falls may benefit from SIP automation, which enforces continuation.

• After meaningful market corrections, lump sum deployment can capitalize on lower valuations.

• Debt funds or low-volatility categories carry less timing risk, making lump sum entry less affected by short-term market movements.

• Experienced investors who can tolerate short-term drawdowns without panic may prefer lump sum to avoid deployment drag.

• When the lump sum is small relative to the overall portfolio size, emotional risk is lower, making immediate deployment easier to manage.

STP involves parking a lump sum in a low-risk fund, such as a liquid or money market fund, and transferring a fixed amount monthly into the target equity or hybrid fund. This combines partial immediate deployment with staggered averaging.

The lump sum earns modest returns while awaiting transfer, reducing opportunity cost. Common STP durations range from 6 to 12 months, though this varies by individual preference and market conditions.

Tax rules depend on fund type and holding period, not investment method. Equity funds held over one year qualify for long-term capital gains treatment.

The difference: SIP creates multiple purchase dates with different holding periods. When you redeem, units are sold on a first-in, first-out (FIFO) basis. Some units may qualify as long-term, others as short-term, depending on when each SIP installment was made.

Lump sum creates a single purchase date, simplifying holding period calculation.