The formula and what it implies
Future value = P × (1 + r)^t. The exponent is what does the work: doubling the time period does far more than doubling the amount, because growth builds on growth.
100,000 at 12% becomes about 310,000 in 10 years and about 965,000 in 20. The second decade adds more than five times what the first decade added, from the same original investment.
Lumpsum or spread it out?
Historically, investing a lumpsum immediately has outperformed spreading it over months in most periods, simply because markets rise more often than they fall and earlier money compounds longer.
The counter-argument is behavioural. If investing everything the day before a crash would make you abandon the plan entirely, staggering it over three to six months buys emotional insurance at a small expected cost. The best plan is the one you can hold through a downturn.
Frequently asked questions
Is lumpsum better than SIP?
For a sum you already hold, investing it sooner has historically produced better outcomes because it spends longer in the market. SIP is better for money that arrives monthly from income.
What return rate should I use?
Match the asset. Broad equity indices have historically returned 7 to 12% depending on market, debt instruments considerably less. Use a conservative figure for planning.
Does this include taxes?
No. Capital gains tax applies in most countries and varies by holding period and asset. Apply your local rules to the gain figure.
Should I invest a bonus as a lumpsum?
Usually yes, after clearing high-interest debt and topping up your emergency fund. Those two beat market returns on a risk-adjusted basis.
What about market timing?
Consistently timing entry is extremely difficult even for professionals. Time in the market has been far more reliable than timing the market.
Are returns compounded annually here?
Yes, annual compounding is used. Funds that compound more frequently differ marginally, well within the uncertainty of any return assumption.