SIP vs Lumpsum – Compare Strategies & Understand Which is better for You

Let us get started with SIP vs Lumpsum Mutual Fund Investment, the two different ways of investment in a mutual fund.

Mutual Fund can be considered as a simple stock investing method but if you are new to investing, the knowledge can be very confusing.

The stocks which have to be invested are done by a professional expert who does immense research about the companies in the market. The expert chooses the best investment option.

Therefore, the investor need not worry about the investment because it is taken care of by fund managers who have immense knowledge about this.

The professional invests the money in various assets and thus the risk of market movement is lessened.

You must know about the mutual fund scheme too. The investment can be done in a mutual fund scheme in two ways, namely, a Systematic Investment Plan (SIP) and a Lump sum amount.

Knowing Lumpsum & SIP

In order to Compare SIP vs Lumpsum, it is important to know about both type of investment.

When investing in a lump sum mutual fund, you have to buy all units at a time.

For instance, for investing Rs.12,000 in a mutual fund via lump sum type then you have to pay a single amount payment to complete the investment plan.

For SIP the same investment amount is divided into one year. Thus, you have to invest INR 1000 monthly which provides flexibility to the investor.

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About SIP or Systematic Investment Plan

Systematic Investment Plan or SIP is very common and popular among the people. This type of investment allows you to invest a smaller and regular amount of money for a certain period.

The SIP method of investing money every month or quarterly brings discipline to the investors. In simple words, SIP means to invest in instalments.

This allows to properly manage the salary of an individual. A salaried person chooses the SIP method of investing. This motivates people to start investing even if it is a smaller amount.

About Lumpsum Investment

Another investment method is a lump sum investment. This is totally different from the Systematic Investment Plan.

Unlike SIP where a fixed amount is invested regularly, a lump sum investment is an investment where an individual invests in one go.

An individual who has good money in hand can opt for this type of investment after looking at the financial plan and goals of the investment.

SIP vs Lumpsum – Which is better?

Find out the Difference between SIP and Lumpsum investment, based on several parameters.

Volatility

The time in which one should enter the market is always thoughtful. SIP has less impact on volatility whereas the lump sum mutual fund has more impact.

Lump sum investment always questions volatility. SIP due to a monthly investment will face less impact of volatility.

Way of investment

In SIP, the investment way is regular and the lump sum mutual fund is a one-time investment. SIP can develop a habit of investment.

Cost

SIP because of rupee cost averaging is lesser in cost. You can purchase more units of stocks if the market is low and when the market is up buy fewer units. SIP reduces cost.

Since you invest in a single time, a lump sum mutual fund is higher in cost. In lump sum, you have to buy units in any condition of the market which does not give you cost averaging benefits.

Flexibility

The flexibility of SIP is high because one is free to invest monthly or even weekly in mutual funds. On the other hand, the flexibility of a lump sum mutual fund is low.

It requires surplus money and thus can affect your expenditure pattern.

Horizon

SIP is a good option for investing if you want to invest in a short time. But if you are looking for a long term investment option then lump-sum investing is better.

This will yield you a better result than SIP in the long term.

Risk factor

The risk involved in SIP is less as compared to a lump sum amount of investment. If the market doesn’t perform well in the future then it can increase the moderate risk to high risk on your money.

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Right Time of Investment – SIP vs Lumpsum

To Compare SIP vs Lumpsum, it is important to know the right time to invest in both of them.

Best Time to Start Lumpsum Investment – SIP vs Lumpsum

If you are planning to invest in equity mutual funds then the lump sum investment option is not right for you.

It is not easy to look for a perfect market but delaying the investment is not something we would recommend.

Lump-sum also allows you to purchase small units daily because of the high volatility in the market. Therefore timing the market is not advisable for professionals.

You should only invest in this after you have cleared your risk profile.

The plan to invest in equity mutual funds for 5 or 6 years can be done at any time but you must be very careful about the prediction of the market and avoid investing that moment if market performing prediction is not nice.

Best Time to Start SIP – Compare SIP & Lumpsum

As per professionals, any time is right for investing in mutual funds via SIP. A SIP investment must be unrelated to the existing market conditions.

If Sensex is 30,000 or even 40,000, there is nothing to bother about when investing via SIP in mutual funds. It is wrong to start investing through SIP when the market is at a high level.

SIP is for short term investment plans and thus predicting the market for the short term is difficult. There are times when the performance of the market may be good but they fall.

The only thing you should remember and be sure about is that you won’t require the invested amount for 5 years.

The time you spent in the market is more crucial than timing the market. Therefore, when investing for the long term, you must invest in SIP very soon.

Why Invest In Mutual Funds

Only a lesser portion of people know and invest in mutual funds. The key highlights to why start investing in mutual funds are given below:

1. Mutual fund is great to build wealth. Not everyone is blessed with rich status, but investing for a long time in mutual funds can help you accomplish your goals in life.
2. Mutual funds are transparent. Mutual fund holdings are available to the public which lets the investor judge how much people are making from mutual funds. All the needed as well as not so important information is available to people in mutual funds.
3. Mutual funds also have the benefit of automatic reinvestment. Any investor can automatically reinvest the profits earned without any additional fee. This will provide you compound interest benefits.
4. Mutual funds are easily accessible. You can start investing in mutual funds with only Rs.500 too. It can be easily traded with less amount too.
5. Investors don’t need to worry if they don’t have much knowledge about the market. Mutual funds are managed by professionals. They do all the research and analyze holding for mutual funds.
6. Mutual funds show many varieties such as balanced funds, sector funds, money market funds, stock funds, etc. This diversity can help you build a varied portfolio without much complication and at less price.
7. Mutual fund companies maintain a record of every mutual fund. With this feature mutual funds are trustworthy. Impressive returns from mutual funds can also be observed. It offers reports annually or semi-annually too to the investors.

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Conclusion: SIP vs Lumpsum

You can Compare SIP and Lumpsum investment with the mentioned points. SIP provides you flexibility and it is a smart way of investing your money.

Lump-sum investment needs a huge fund to invest and is relevant to individuals who have extra money. The best way of investing can be revamping your Lumpsum investment to SIP through STP.

The end decision of choosing a way to invest in mutual funds should be according to your present situation and comfort.

Investing in mutual funds can be a wonderful start towards earning returns and living a comfortable life.

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