A fund that goes nowhere
Take a fund whose NAV moves like this over five months:
₹10 → ₹8 → ₹5 → ₹8 → ₹10
It starts at ₹10 and ends at ₹10. Anyone who put in a lump sum on day one and held to the end made nothing. The question is what a monthly SIP made in the same fund.
The worked example
Invest ₹5,000 on the first day of each of five months, at the NAVs above. Units bought = ₹5,000 ÷ NAV.
| Month | NAV | Units bought |
|---|---|---|
| 1 | ₹10 | 500 |
| 2 | ₹8 | 625 |
| 3 | ₹5 | 1,000 |
| 4 | ₹8 | 625 |
| 5 | ₹10 | 500 |
| Total | 3,250 units |
Total invested: ₹25,000. Average cost per unit: ₹25,000 ÷ 3,250 = ₹7.69, well below the average NAV of ₹8.20.
At the end the NAV is ₹10, so the holding is worth 3,250 × ₹10 = ₹32,500. The gain is ₹7,500, or 30%, on a fund that ended exactly where it began. A lump sum of ₹25,000 on day one buys 2,500 units and is worth ₹25,000: a gain of zero.
The SIP did better because it bought the most units (1,000) when the NAV was lowest, at ₹5. When prices recovered, those cheap units did the heavy lifting.
Where the example flatters the SIP
The gain came from the dip and the recovery. Change the path and the answer changes:
- A steady rise. If the NAV climbed ₹10, ₹11, ₹12, ₹13, ₹14, the lump sum would win, because all its money was invested from day one while the SIP's later instalments bought at higher prices.
- A fall with no recovery. If the NAV went 10, 8, 5 and stayed there, the SIP would still be down, but by less than the lump sum: with the NAV at ₹5 from month 3 onward, five instalments buy 4,125 units worth ₹20,625 on ₹25,000 invested (−17.5%), against −50% for the lump sum.
So a SIP is not a way to make money from a flat market. It is a way to put money to work gradually, and it benefits from volatility only if the fund recovers. Our post on lump sum or SIP: how to decide lays out when each fits.
Why this matters in a falling market
The third month of the example is the one people want to skip: the NAV is down 50% and the news is bad. Yet that instalment bought twice as many units as the first. Stopping there would have removed the unit count that produced the gain. Read more in should you stop a SIP in a market crash and pause or stop a SIP: what it costs.
Measuring a SIP properly
A single "gain" figure hides that each instalment was invested for a different time. The cleaner measure is XIRR, discussed in reading portfolio XIRR vs gain. To test a real fund's past, use the backtest on any fund page, described in how to backtest a SIP or lump sum. For projections, the SIP calculator is the starting point.
This post is educational, not financial advice. The NAV path is invented to illustrate the arithmetic and is not any fund's record.
Frequently asked questions
What is rupee cost averaging?
It is the effect of investing a fixed amount at regular intervals, so you buy more units when the NAV is low and fewer when it is high, giving an average cost below the average NAV in a volatile market.
Does a SIP always beat a lump sum?
No. If the NAV only rises, a lump sum put in on day one does better, because all the money has been invested the whole time. A SIP helps most when prices fall and recover.
Is a SIP safer than a lump sum?
It spreads the entry across many dates, which reduces the risk of investing everything at a peak. It does not protect against a fund that keeps falling.
This is commentary on published data, not investment advice. WealthTicker is not a SEBI-registered adviser or distributor. Figures are as of the dates stated and can be revised by their source.
Keep reading
Pausing or stopping a SIP: what a six-month break costs
₹10,000 a month for 10 years at 12% is ₹22.19 lakh. Skip six months and it is ₹20.39 lakh to ₹21.54 lakh, depending on when.
ELSS lock-in: each SIP instalment has its own 3 years
An ELSS lock-in runs three years from each purchase date, so a monthly SIP unlocks one instalment at a time. The schedule, and what it means for exits.
SIP bounced? What a failed instalment does and doesn't do
If your bank balance is short on SIP day, no units are bought that month, and the fund house stops the SIP after a few misses. What to do, and how to avoid it.