SIP vs Lumpsum — what to do with that bonus

A Diwali bonus hits your account. A friend says "just start a SIP." A relative says "FDs are safe." Your father points at gold. And all you're really thinking is — what do I do with ₹5 lakh? Forget the opinions. Let's use the numbers.

Theory first, then real talk

Lumpsum means putting the whole amount into the market today. SIP means spreading the same amount across 12 to 60 months. Over the long run, markets rise (see 40 years of Indian data). Lumpsum, on average, gives ~1–2% higher returns — because your money starts working sooner.

Lumpsum's average return is higher. SIP's average sleep is better.

So why does SIP even exist?

Because markets don't move in straight lines. If you'd invested a lumpsum in March 2020, you'd look like a genius today. If you'd done it in January 2008, your chest would hurt for a year. SIP removes that emotional situation. A fixed amount goes in every month — whether markets are up or down. When they're down, you buy more units ("rupee cost averaging" — basically budget-friendly shopping).

Numbers, without the drama

Say you have ₹6 lakh. Nifty 500, held for 10 years.

• Lumpsum: invested all at once. At a historical ~12% average, it grows to ~₹18.6 lakh.
• 12-month STP: parked in a liquid fund first, ₹50k moved to a mutual fund each month. Grows to ~₹17.6 lakh.
• Monthly SIP from fresh income: meanwhile the lumpsum sits in the bank. Smallest end value.

What to do, in one line

• If the money is in your hand right now and your horizon is 7+ years — do an STP (push it into the market over 6–12 months). Best of both worlds.
• If the money comes from your salary every month — do a SIP. Discussion over.
• If market crashes give you stomach ache — SIP, even if returns are slightly lower. Sleep matters.

The parent-friendly answer

Keep a lifelong SIP from salary. Move a lumpsum into equity through an STP over 6–12 months. And no — don't forward this to the family group.