You can invest in a mutual fund plan in one of two ways: as a lump sum payment or as part of a systematic investment plan (SIP). Although the lump sum method is a one-time payment, the SIP route invests a defined amount in a mutual fund plan of your preference at fixed intervals of time. People, on the other hand, are always looking for SIP vs Lump Sum to understand the differences.
SIP vs Lump Sum
SIP is a method of investing in mutual funds that is done in a systematic manner. Depending on the plan you choose, you can invest each month, quarter, or year.
A single total amount of cash is referred to as a lump sum amount. You invest the entire money at once before the start of the investment period with this sort of investment.
These are the major difference Between SIP and Lump Sum:
|Market Tracking||You don’t need to track the market.||You need to track the market trend.|
|Money required||You can start with INR 500.||You can start with INR 1,000.|
|Averaging||Your investment will be averaged with time.||No Option to average your investment.|
|Compounding||Yes, in SIP money is reinvested.||It’s just a one time plan.|
|Investment Time||You can invest anytime.||Invest when the market is at low.|
||You can learn financial Discipline.||There is no option like that.|
|Risk||Lower risk than Lump Sum||Higher risk than SIP|
Understand the difference between SIP and Lump Sum
Investors can earn from potential wealth building via mutual funds through both SIP and lump-sum investments. The key difference among SIP and lumpsum investing is the regularity of investment. SIPs are a way to invest in a mutual fund plan on a regular basis, including daily, weekly, monthly, quarterly, or half-yearly.
Lump-sum investments, on the other side, are a one-time large investment in a specific plan. The minimum investment changes as well. SIPs can be started with as low as Rs.500 each month, whereas lump-sum investments usually require at least Rs.1,000.
SIPs may be a better investment option for you if you have a little but consistent amount of money available for investing. Lump-sum investments may be more advantageous for individuals with a large investment amount and a high risk appetite.
When do we need to Invest in SIP?
A person with a steady salary can invest in a SIP. But why is SIP superior? This alleviates the need to invest a large sum of money all at once. SIP is strongly suggested for anyone investing in equity funds and searching for a long-term investment. SIP investment also works effectively in a down market.
This is because while the price is low, an investor can buy a big number of mutual fund units. Once the market takes up, the growth rate will be strong. The most important question is when is the best time to invest in a SIP.
Well, any time is a good time. Whether the market is at an all-time high or low, SIP investors should be unaffected. This is because mutual fund investors are supposed to invest for a long time (5-6 years minimum).
However, investors should consider whether a SIP is preferable to a one-time investment. It is usually encouraged to invest through a SIP for the long-term, as investing over the course of an economic cycle helps investors and allows them to enjoy significant rewards. Furthermore, the longer an investor continues, the more they can profit from the power of compounding.
When do we need to Invest in Lump Sum?
Investors who want to invest in debt mutual funds for the shorter term will benefit from lump sum investing in mutual funds. Investing in debt mutual funds using a systematic investment plan (SIP) is pointless.
Because the suggested time-frame for debt mutual funds is fewer than three years, a lump sum approach should be utilized to invest in them. Is this to say that lump-sum investments in equities funds and mutual funds are not possible? Without a doubt not.
A lump sum investment in equities mutual funds is possible. Windfall gains, profit from the sale of an asset, or any excess cash accessible can all be placed in the market to make a profit.
When employed persons receive a year-end bonus or a festival bonus, they can put a lump sum in mutual funds.
Factors to Consider Before Investing
Consider the following elements while deciding on an investment strategy:
If you have a large sum of money, a lumpsum investment may be a good way to go so that you don’t wind up wasting it. SIP, on the other side, would be better for a paid person seeking to establish a savings habit.
Investing in a lump sum throughout a market bottom will yield larger returns. If you’re having trouble identifying cycles, a SIP can help spread the risk.
As previously stated, market volatility has a significant impact on equity fund performance. Debt funds are less influenced by market fluctuations and are expected to provide similar results whether you invest in a lump sum or a series of payments.
Your decision to invest in a SIP rather than a lump-sum amount should be based on your specific needs. The path of investing must be determined by factors including income, financial stability, investment objectives, and risk capacity.
It’ll never be a case of SIP vs Lump Sum. As they go side by side, there is always a ‘and’ between them. An investor cannot select only one sort of investment. In mutual fund investment, lump sum or SIP both offer advantages and work for different individuals at different periods.
This is all from our side regarding SIP vs Lump Sum. Although, if you have any doubts you can just comment below.
Other Interesting blogs related to SIP vs Lump Sum:
Can I invest lumpsum in existing SIP?
Yes, You can add without any issues. Most mutual fund houses welcome this kind of investment.
Best lump sum investment plan?
Kotak Emerging Equity Scheme, SBI Bluechip Fund – Direct Growth, Essel Large Cap Equity Fund – Direct Growth are some of the best lump sum investment plans.
Best SIP investment plan?
Axis Long Term Equity Fund, Motilal Oswal Long Term Equity Fund, ICICI Prudential Bluechip Fund and HDFC Equity Fund.
How to add lump sum amount in SIP Zerodha?
Click on the buy Button of the same mutual fund plan to add a lump sum amount in SIP Zerodha.
SIP stands for ?
SIP stands for Systematic Investment Plans.