SIP vs Lump Sum Investment
A lump sum buys units on one day; a SIP spreads its purchases over many days. This lesson shows with simple arithmetic why the outcome depends on the path of the NAV, and how a Systematic Transfer Plan staggers a lump sum.
One purchase date or many
A lump sum is a single purchase: the whole amount buys units at the NAV applicable to one day. A SIP is a series of purchases: equal instalments buy units on many dates at many NAVs. The scheme, its portfolio and its risks are the same either way; only the timing of the purchases differs.
When the NAV rises, and when it falls
If the NAV rises steadily after the first date, the lump sum buys all its units at the lowest price of the period, while each later SIP instalment buys fewer units at a higher price. The lump sum ends with more units.
If the NAV falls after the first date, the position reverses. The SIP's later instalments buy more units per rupee, so the SIP collects more units in total than the lump sum would have. More units is not the same as a gain: both routes can still show a loss.
Markets do neither thing steadily. Which route ends higher depends on the path the NAV takes, which is not known beforehand, and neither route assures a profit or protects against loss.
Staggering a lump sum through an STP
A lump sum can also be invested in stages. Under a Systematic Transfer Plan (STP), the amount is first placed in one scheme, and a fixed amount is then moved at intervals into another scheme of the same fund house.
Each transfer is a redemption from the source scheme followed by a purchase in the target scheme. The redemption can give rise to a capital gain on the source units, and an exit load can apply if the source scheme has one. Stamp duty of 0.005% applies to the purchase in the target scheme, just as it applies to a lump-sum purchase or a SIP instalment.
An STP changes the dates on which the target scheme's units are bought. It does not change the risk of the target scheme, and the money still waiting in the source scheme moves with that scheme's NAV.
Rules at a glance
The same ₹60,000 on two NAV paths (illustrative; stamp duty ignored)
- Rising path: the NAV is ₹20, ₹25 and ₹50 on three monthly dates.
- Lump sum on the first date: 60,000 ÷ 20 = 3,000 units.
- SIP of ₹20,000 on each date: 20,000 ÷ 20 + 20,000 ÷ 25 + 20,000 ÷ 50 = 1,000 + 800 + 400 = 2,200 units.
- Value at the last NAV of ₹50: lump sum 3,000 × 50 = ₹1,50,000; SIP 2,200 × 50 = ₹1,10,000.
- Falling path: the NAV is ₹50, ₹40 and ₹25. Lump sum: 60,000 ÷ 50 = 1,200 units. SIP: 20,000 ÷ 50 + 20,000 ÷ 40 + 20,000 ÷ 25 = 400 + 500 + 800 = 1,700 units.
- Value at the last NAV of ₹25: lump sum 1,200 × 25 = ₹30,000, a loss of ₹30,000; SIP 1,700 × 25 = ₹42,500, a loss of ₹17,500.
Result. The lump sum ends ₹40,000 higher on the rising path. On the falling path the SIP holds 500 more units, yet both routes show a loss. The NAV figures are invented; the path of the NAV decides the comparison.
Key points
- A lump sum is bought at one day's NAV; a SIP's purchases are spread over many dates and NAVs.
- A steady rise in the NAV gives the lump sum more units; a fall after the start gives the SIP more units, though both routes can still show a loss.
- Which route ends higher depends on the path of the NAV; neither assures a profit or protects against loss.
- An STP moves a fixed amount at intervals between two schemes of the same fund house; each transfer is a redemption from the source scheme and can give rise to a capital gain.
Common misunderstandings
- A SIP is not certain to end ahead of a lump sum: when the NAV rises steadily, the lump sum buys more units.
- Buying more units in a falling market is not a profit: the holding shows a gain only if the NAV is above the average cost.
- An STP is not a tax-free shift inside a fund house: each transfer is a redemption from the source scheme and can give rise to a capital gain.
Questions people ask
Which gives the higher value, a SIP or a lump sum?
It depends on how the NAV moves. A steady rise favours the lump sum; a fall after the start gives the SIP more units. Neither assures a profit.
Does a SIP protect against a falling market?
No. Later instalments buy more units at lower NAVs, which lowers the average cost, but the holding can still be worth less than the amount invested.
Why is an STP transfer taxable?
Because units of the source scheme are redeemed to fund it. Any gain on those units is taxed according to that scheme's type and the units' holding period.
What this lesson relies on
- SEBI Master Circular for Mutual Funds, 20 March 2026
- SEBI (Mutual Funds) Regulations, 2026, regulation 44(4) (exit load)
- Indian Stamp Act, 1899, as amended by the Finance Act, 2019 (stamp duty on mutual fund units from 1 July 2020)
- Income-tax Act, 2025 (capital gains on redemption of units)
This lesson was reviewed independently against these sources on 8 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.