A lot of investors have this doubt in mind – Whether to do a one time investment or go for SIP? Well, let me tell you that one time investment gives much and much better returns than a systematic investment plan(SIP). I am going to prove it to you with a very simple calculation.

Let us suppose that you are doing two similar investments in the same company/mutual funds for a five year term. It gave a consistent return of 20% annually. At one place, you invested 10 lakhs directly. After 5 years of 20% return, you are now rich by 10,73,600. Which is more than double of what you invested. So you now get back 20.736 lakhs. At the other place, you decided to invest 2 lakhs per year. After 5 years of 20% returns, you are now rich by 7,85,984 rupees. You get back 17,85,984 rupees. Calculations show that, the one time investment could earn you 2.88 lakhs more than systematic investment plan which is a big amount.

Let us take another example but this time the amount is less than before. Same as before, you invest in both, one time and SIP for 5 year term. The company again gave you a consistent return of 20% each year. Lets suppose that you invested 6 lakh rupees one time. By the end of 5 years, you will have almost 15 lakh rupees left which means a profit of almost 9 lakh rupees in 5 years. In other hand you invest 1.2 lakh yearly. By the end of 5 years, you will have just a little more than 10.5 lakh which means a profit of almost 4.5 lakh rupees. One time investment can get you double returns.

**You must be wondering that how one gets more returns in one time investment than SIP?**

Well it is pretty simple actually. In one time investment, you are investing a big amount initially. So at the end of first year, you get a return on that big sum of money. The return gets added to your sum and next year you get a return on the invested sum+return of first year. Like this it goes on adding up. Whereas in SIP, you invest a little sum every year. So the return you get here is on a lower sum of money each year. Like in case of second example stated above, your return of 20% is on 1.2 lakh (24k only) but in the 6 lakh the return was 1.2lakh. Now the second year return will be on 2.64 lakh here whereas there the return will be on 7.2 lakhs. So you see the difference? This is why one time investment is much preferable.

The lumpsum option can give better return than SIP. But if one considers comparatively longer periods, which consists 2-3 cycles of ups and downs in the market, SIP gives more consistent returns.