About the lumpsum calculation
A lumpsum investment puts the whole amount to work immediately, so every unit of money earns for the full period. That is why, on a rising average, investing at once beats drip-feeding the same total — at the cost of much greater exposure to bad timing.
Formula
A = P × (1 + r)^t
P = amount invested
r = annual return as a decimal
t = yearsWorked example
100,000 at 12% for 10 years: 100,000 × 1.12¹⁰ = 310,585. The same money spread as 833 a month over those 10 years grows to roughly 193,000.
Frequently asked questions
Lumpsum or SIP — which is better?
Mathematically, lumpsum wins more often, because money invested earlier compounds longer. Practically, SIP protects you from investing everything immediately before a crash and is far easier to sustain from a salary. The best choice depends on whether you already have the money.
What if the market falls right after I invest?
Then the lumpsum underperforms, potentially for years. This is the real risk the arithmetic hides. If a 30% drawdown shortly after investing would make you sell, staggering the entry over several months is worth the small expected cost.
Does this assume returns are steady?
Yes, and they are not. A constant rate is a modelling convenience. Actual sequences of returns produce meaningfully different outcomes even at the same average, particularly over shorter horizons.
Sources
- Standard compound growth formula