Lumpsum versus Staggering? What is the more optimal way to invest larger sums of money?

Investors sometimes have a larger-than normal amount of money that is available for investments (this could be due to an annual bonus, an asset sale, inheritance or other such events). We are often asked the question on whether it is better to invest this money in one-shot as a lumpsum investment, or would it be better to stagger the investments over a period of time?

As with all matters related to investments, answers to questions are often more nuanced as compared to simplistic answers that are often given to investors. 

Since equity markets are volatile, investors are often recommended to stagger their investments, since this allows them to average down the cost of their investments in case markets were to correct during the period of staggering. However, the flip side of this argument is also true – if markets were to continue to move up over the period of your staggering, this would lead to a higher average cost of your investments. 

What does the past data indicate in terms of lumpsum vs staggering?

In order to better understand the pros & cons of lumpsum vs staggered investing, we have undertaken a study using the past 20 years of Sensex data, where we compare the average investment cost across this period of investing in a lumpsum versus investing in a 12-month staggered fashion.

The results of this study can also be seen in the graph below, which shows on a month wise basis how much more expensive a staggered investment approach has been compared to a lumpsum investment.