Lump sum investing vs SIPs in a volatile market: Which is the smarter option?

In a strong sign of growing investor confidence, the mutual fund industry’s assets under management (AUM) have tripled over the past five years to ₹74.4 lakh crore as of June 30. In June alone, mutual funds added 30.32 lakh new folios, taking the total to 24.13 crore. Systematic investment plan (SIP) inflows have also been rising steadily.

In June 2025, SIP contributions reached ₹27,269 crore, a 2.2% increase from May and a 5.2% rise from March. “This consistent growth shows how investors are sticking with disciplined investing despite market swings. While SIPs help reduce risk over time, lump sum investments may lag if market direction is uncertain,” said Trivesh D., COO of analytics platform Tradejini.

Since late 2024, market behaviour has been marked by volatility and unpredictability, driven more by sentiment than structure. In such an environment, SIPs tend to work well for most investors: invest regularly, average out the cost, and let the compounding quietly do its job without trying to time the market.

“Compounding allows your returns to earn returns, accelerating growth over time. The longer you stay invested, the greater the impact. For instance, investing ₹5,000 monthly at 12% returns over 10 years could grow to ₹11.20 lakh. SIPs maximise compounding by enabling small, consistent investments. Also, avoid stopping or reducing SIPs during volatile phases, as staying disciplined yields long-term benefits,” explained Trivesh.

Additionally, volatile markets can be challenging to navigate, and no one knows which direction the markets may move or when. They could rise for a week but then fall and wipe out the gains of the whole week, the very next day.

Rohan Goyal, investment research analyst at MIRA Money, echoed similar views. “SIPs are generally a better way to invest in a volatile market, mainly due to the uncertainty of direction of movement and the period for which the volatility could continue.”

SIPs help build the portfolio gradually during such times by investing at both highs and lows, thereby averaging out the cost of acquisition and helping to accumulate more units, which will be of help when the market stabilises and starts to move upward with certainty.

“Lump sums are generally riskier as an investment strategy, as at any time, the investments could further decline in value for some time, leaving investors with investments made at higher prices and no money left to deploy at opportune times,” added Goyal.

For instance, a lump sum of ₹1,20,000 in the Nifty 500 on August 1, 2024, would have been worth ₹1,18,000 as of July 24, 2025, leading to an extended internal rate of return (XIRR)—a financial measure that calculates the annualised yield of an investment taking into account the timing and amount of cash flows—of -0.89% for the year.

However, if an SIP of ₹10,000 per month had been made during the same period, the investment of ₹1,20,000 would’ve been worth ₹1,24,000 as of July 24, 2025, resulting in an XIRR of 7.03% for the year, explained Goyal.

This was possible only because the SIP was triggered at both highs and lows, which helped accumulate more units, as timing the market is impossible.

However, Goyal also said that some amount of dry powder should also always be kept, taking advantage of steep falls by deploying lump sums when the market falls steeply.

Therefore, it doesn’t mean that lump sum investing is out of the picture. When markets dip, a well-timed lump sum can deliver better entry points, especially if you have surplus funds lying idle and long-term goals.

“For instance, if you receive a large sum, investing once in a well-researched scheme can put it to work for the long term. A ₹5 lakh lump sum invested at 12% returns could grow to around ₹15 lakh over 10 years. SIPs and lump sums represent two distinct approaches to disciplined investing,” explained Trivesh.

This way, one should understand that in a volatile market, SIPs and lump sums have their distinct roles. So, it is not about choosing one over the other; it’s about using both smartly. “Your goals, time frame, and liquidity buffer should drive the mix. The market won’t wait for perfect timing, but your plan can be ready for it,” said Trivesh.