HaatBeatBeyond the numbers
The maths shows one side. These are the things only you can weigh.
- Regret after a fallInvesting everything just before markets drop can sting for years. Spreading makes that regret less likely, which many people value more than a small expected gain.
- Sleeping wellA plan that lets you stay calm through ups and downs is one you are more likely to stick with.
- Finishing the planSpreading only works if every instalment is actually made, even when markets look scary.
- The cost of waiting too longSpreading over many years means a lot of money sits earning less. Short spreads balance risk and cost.
- Matching money to its goalMoney needed in a year or two may not belong in the market at all. The right choice depends on when you need it.
How it's calculated
Both start with the same amount. Money still waiting earns the savings or deposit rate; money in the market earns the market rate. With steady returns, whichever place earns more is where money should sit sooner, so the lump sum ends ahead when the market return beats the waiting rate.
Assumptions
- Steady returns every month. This hides market falls, which are the main reason people spread an investment.
- Equal amounts move into the market at the start of each month.
- Taxes, charges and switching costs are not included.
Worked example
With 10 lakh rupees, an assumed 11% market return and 6.5% while waiting: investing at once grows to about 29.89 lakh rupees after 10 years; spreading over 12 months (about 83,333 rupees a month) grows to about 29.28 lakh, so the lump sum ends about 61,394 rupees ahead under these steady-return assumptions.
Questions
If the lump sum usually wins, why do people spread?
Because returns are not steady. Investing everything just before a fall can be painful and hard to recover from emotionally. Spreading lowers that risk, at the cost of some expected return.
Is spreading the same as a SIP?
It is similar: both invest in instalments. A SIP is usually monthly saving from income; spreading moves a sum you already have into the market over a set period.
How long should the spread be?
Longer spreads lower timing risk more but leave more money waiting. Try a few lengths to see the cost in the steady-return case.
When does spreading end ahead in this model?
Only when the waiting account earns more than the market return assumption.