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SIP VS LUMP SUM MUTUAL FUND INVESTMENT: KNOW WHICH WORKS BEST AND WHEN

An investor is endowed with several choices. Apart from choosing which schemes to invest in, an investor is also offered to choose between two different methods of investing in mutual funds, namely – SIP and lumpsum mode of investment. This article will help you understand the two distinct ways of investment and choosing the right mode for your portfolio.

What is SIP?

Systematic Investment Plan or SIP is a way to invest in mutual funds. Under SIP investment, an investor invests a fixed sum of money at regular intervals for a fixed period in their desired mutual funds. The periodicity of the intervals can be daily, weekly, monthly, quarterly, semi-annually, annually, etc. Under this disciplined form of investing, regular, automated investments are made against a particular scheme

What is lumpsum?

Under a lumpsum investment, an investor invests a significant amount of money in a particular mutual fund scheme in one go. This method is usually chosen to build superfluous liquidity and wealth. Unlike SIP investment, this method requires the timing of the market. Lumpsum mode of investment is generally recommended when the markets are continually growing.

SIP vs Lumpsum

SIP or lumpsum are just different ways to invest in mutual funds and not financial instruments in themselves.

SIP offers multiple benefits like effortless investing, no need to time the market, power of compounding, rupee-cost averaging etc. It also instills a sense of financial discipline among investors, which is crucial to achieve long-term financial goals. An SIP investment also makes it fairly simple to keep aside a budget for retirement corpus and other financial goals.

Mutual fund experts often advise investors to link their SIP investments with their long-term financial goals. This ensures that you don’t get tempted to exit the market as soon as the market falls. This further ensures that you remain focused on your goals.

On the other hand, lumpsum investments require individuals to invest the entire investment amount in one go. Investors with considerable unused cash and a high-risk tolerance usually prefer this mode of investment.

To conclude, when you invest in mutual funds through SIP option, you in a way follow the market fluctuations. It coerces investors to tail the herd mentality. SIP might help an investor to achieve average returns similar to index returns in the long run. However, it can also make them suffer in the extreme market conditions like a market crisis. A fair understanding of market cycles and the pros and cons of investing in SIP and lumpsum investment strategies at different market cycles can help investors be better prepared to effectively use both the strategies and optimise investment returns and reduce volatility.

If you want to understand the future value of your investments, you can use an SIP calculator or a lumpsum calculator depending on the mode of your investment. Whether you opt for SIP or lumpsum, entirely depends on whether you have regular savings or lumpsum amount of liquid money to invest. SIP or lumpsum mode of investments solely depends on an investor’s financial goals, risk profile and investment horizon. Whichever mode you decide to choose, make sure to run it through with your fund advisor. Happy investing!

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