When is Lump-sum investment better than SIP?

If you want to invest in mutual funds, there are two modes of investment. One is SIP and other is Lump-sum. SIP is generally considered better because it inculcates habit of 'disciplined' investing. But on some occasions Lump-sum might be better than SIP. Let's me show you when. 

I've compared returns of a tax saver fund over a period of time using both SIP and Lump-sum mode of investment. In below table, one can observe growth of SIP investment and Lump-sum investment over a period of one year. We have considered SIP of ₹5000 per month for SIP and one time investment of ₹60,000 per year for Lump-sum investment.

We observe that SIP investment of ₹60,000 grows to be ₹61055 at end of the year. But Lump-sum investment value changes according to time of investment. While lump-sum investments made early in a financial year fetches better returns than SIP, investments made after November gives less returns than SIP which is going on throughout the year. 

@2017-18

Date	NAV	Return Factor	Investment	SIP value	Lump-sum Value	SIP good?
03-04-2017	42.1860	1.1132	5000	5,566	66,793	0
02-05-2017	43.4950	1.0797	5000	5,399	64,783	0
01-06-2017	43.8330	1.0714	5000	5,357	64,283	0
03-07-2017	43.5930	1.0773	5000	5,386	64,637	0
01-08-2017	46.0160	1.0206	5000	5,103	61,233	0
01-09-2017	46.3160	1.0139	5000	5,070	60,837	1
03-10-2017	45.9950	1.0210	5000	5,105	61,261	0
01-11-2017	48.3150	0.9720	5000	4,860	58,320	1
01-12-2017	47.8990	0.9804	5000	4,902	58,826	1
01-01-2018	49.9970	0.9393	5000	4,696	56,358	1
01-02-2018	50.1910	0.9357	5000	4,678	56,140	1
01-03-2018	47.6040	0.9865	5000	4,933	59,191	1
12-03-2018	46.9620		60000	61,055

Finally, check last column which tells whether SIP is better than lump-sum investment made in that particular month. Value of 0 means Lump-sum is better and value of 1 means you are better of with SIP.

Well, this was only for one year. We know that lock-in in ELSS is three years. Let's analyse returns made on investments of three years back. 

@2014-15

Date	NAV	Return Factor	Investment	SIP value	Lump-sum Value	SIP good?
01-04-2014	21.4900	2.1853	5000	10,926	131,118	0
02-05-2014	21.7940	2.1548	5000	10,774	129,289	0
02-06-2014	25.2090	1.8629	5000	9,315	111,774	0
01-07-2014	26.7530	1.7554	5000	8,777	105,324	0
01-08-2014	26.5950	1.7658	5000	8,829	105,949	0
01-09-2014	28.6100	1.6415	5000	8,207	98,487	1
01-10-2014	28.7250	1.6349	5000	8,174	98,093	1
03-11-2014	30.0020	1.5653	5000	7,826	93,918	1
01-12-2014	31.1670	1.5068	5000	7,534	90,407	1
01-01-2015	31.0380	1.5130	5000	7,565	90,783	1
02-02-2015	32.6100	1.4401	5000	7,201	86,407	1
02-03-2015	33.5700	1.3989	5000	6,995	83,936	1
12-03-2018	46.9620		60000	102,124

Here also it can be observed that lump-sum mode is better than SIP if you invest before August for any financial year. Furthermore, lump-sum money invested in early two months gives much better returns than when invested after that. 

Let's do same exercise to analyse 5 year returns

@2012-13

Date	NAV	Return Factor	Investment	SIP value	Lump-sum Value	SIP good?
02-04-12	15.8830	2.8545	5000	14,272	171,270	0
02-05-12	15.8760	2.8558	5000	14,279	171,345	0
01-06-12	14.9330	3.0361	5000	15,180	182,166	0
02-07-12	15.9870	2.8359	5000	14,180	170,156	0
01-08-12	16.0860	2.8185	5000	14,092	169,109	0
03-09-12	16.1930	2.7999	5000	13,999	167,991	0
01-10-12	17.6010	2.5759	5000	12,879	154,553	1
01-11-12	17.5580	2.5822	5000	12,911	154,931	1
03-12-12	18.6730	2.4280	5000	12,140	145,680	1
01-01-13	19.1130	2.3721	5000	11,861	142,326	1
01-02-13	18.9780	2.3890	5000	11,945	143,339	1
01-03-13	17.8120	2.5454	5000	12,727	152,722	1
12-03-18	45.3380		60,000.00	160,466

Whoo! We get impressive ₹160,000 return for investment of ₹60,000 over the five years. In this case however, we see less variation in returns but early lump-sum investment still fetches better return than SIP.

Lastly, we will check for returns over 10 years.

@2008-09

Date	NAV	Return Factor	Investment	SIP value	Lump-sum Value	SIP good?
01-04-08	12.6760	3.5767	5000	17,883	214,601	1
02-05-08	14.0600	3.2246	5000	16,123	193,477	1
02-06-08	13.1720	3.4420	5000	17,210	206,520	1
01-07-08	10.8780	4.1679	5000	20,839	250,072	1
01-08-08	11.8920	3.8125	5000	19,062	228,749	1
01-09-08	11.8050	3.8406	5000	19,203	230,435	1
01-10-08	10.4050	4.3573	5000	21,787	261,440	1
03-11-08	8.3230	5.4473	5000	27,237	326,839	0
01-12-08	7.5030	6.0426	5000	30,213	362,559	0
01-01-09	8.2860	5.4716	5000	27,358	328,298	0
02-02-09	7.5460	6.0082	5000	30,041	360,493	0
02-03-09	7.1880	6.3075	5000	31,537	378,447	0
12-03-18	45.3380		60,000	278,494

Oops, in last column we got ones(1) early and zeros(0) later. This is because in 2008 world economy was hit by global recession. Market crashed by more than 50%. Thus lump-sum investment made after the share market crash gave more returns than before the market crash. 

WHAT'S THE POINT OF ALL THIS?

The point is that scenarios like 2008 occur rarely. Thus in normal course of life it is better to invest early in the year to take maximum benefit of our investments. If someone has lump-sum amount to invest in hand they should invest in ELSS mutual fund during first five months of the financial year i.e. April-August. 
And if one doesn't have money for lump-sum investment, keep investing through evergreen SIP mode to reap the benefits of economic growth. After all, mutual funds sahi hai!!