Question
SIP vs lumpsum — how are returns calculated?
Answer
Bottom line: Both invest in mutual funds; a SIP spreads it out and averages your cost, while a lumpsum goes in at once.
1. Rupee-cost averaging
A SIP buys more units when the NAV is low and fewer when high, smoothing your purchase price.
2. How returns are measured
Because a SIP has many instalment dates, returns are computed as XIRR, not a simple point-to-point figure.
3. Tax
Each instalment has its own holding period, so one redemption can produce both short and long-term gains.
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This answer is general information based on the law as it stood when written and is not professional advice on your specific situation. Verify the current position and consult a qualified professional before acting. See our disclaimer.