SIP vs lumpsum returns – Benefits of using dedicated calculators over Excel formulae

by admin

Systematic investment plans (SIPs) and lumpsum investments are two common ways that Indian investors put their money into mutual funds, stocks, and other financial instruments. Both methods have their own advantages and disadvantages when it comes to returns. Using dedicated SIP and lumpsum calculators can provide more accurate projections than simple Excel formulas. 

Understanding SIP investing

A systematic investment plan or SIP involves investing a fixed amount at regular intervals, usually monthly or quarterly. The intervals and amounts remain constant through the tenure of the SIP. For example, an investor may invest ₹5,000 every month for 3 years into an equity mutual fund SIP. This builds a corpus through rupee cost averaging over time. As the investor buys more units when the NAV is low and fewer units when the NAV is high, the average cost per unit comes down. 

Benefits of SIP investing

  • Disciplined approach: Investor commits to regular investments, which enforces investing discipline
  • Rupee cost averaging: Reduces average cost per unit, enhancing returns  
  • Asset allocation: Easy way to build an asset allocation across various assets
  • Convenience: Automated process requires minimal monitoring
  • Flexibility: Allows pausing, increasing or decreasing SIP instalments

Limitations of SIP investing

  • Returns are linked to asset class performance
  • Requires longer investment tenure to realise full benefits  
  • Needs consistent cash flows to maintain SIP payments
  • Doesn’t allow lumpsum top-ups to existing SIPs

 Understanding lumpsum investing 

In lumpsum investing, the investor puts in a large one-time amount into a mutual fund scheme or stock. For example, investing ₹5 lakhs into an equity fund at one go.

Benefits of lumpsum investing

  • Market timing: Allows investing when markets are perceived to be low
  • Immediate exposure: To the asset class instead of gradual exposure via SIPs
  • Gain from volatility: Full corpus is invested when indices fall to cost average 
  • Flexibility: Change investments anytime instead of SIP lock-in

Limitations of lumpsum investing

  • Market timing risk: Requires expertise to identify the right entry point
  • No rupee cost averaging: Investor risks buying at peak levels
  • Volatility risk: Prone to short-term market fluctuations  
  • Emotional decision making: Tendency to invest based on current sentiment

 SIP return calculators vs Excel formulas

Dedicated SIP return calculators available online provide more accurate and realistic projections compared to using basic Excel formulas. 

Key features of SIP return calculators

  • Custom inputs: Allow entering personalised details like investment amount, tenure, expected returns etc. 
  • Automated calculations: Quickly provide projected corpus, returns etc. Eliminates manual work.
  • Visualisations: Present projections through graphs and charts for better understanding.
  • Tax calculations: Compute post-tax returns based on income tax slabs. 
  • Goal planning: Align SIP contributions to achieve financial goals.

Limitations of Excel formulas

  • Rigid assumptions: Cannot adjust expected returns, taxes etc. without editing formula logic. 
  • Prone to errors: Time consuming and error-prone to build complex formulas.
  • Basic projections: Don’t provide detailed analysis and visualisations. 
  • No customisation: Don’t account for individual investment details and goals.

Using online SIP calculators thus results in more reliable projections compared to Excel. 

 Conclusion

SIP and lumpsum investing both have their own pros and cons when it comes to returns in the Indian markets. Using dedicated online calculators gives a more realistic estimate compared to basic Excel formulas. Key factors like time horizon, asset choice, risk appetite and financial goals impact ideal investment size and strategy. Investors must align investment style to their individual profiles and goals.

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