SIP vs Lump Sum – Which is better way to invest?

You can invest in a mutual fund scheme through two plans, which is a lump sum investment plan or a systematic investment plan (SIP). So, Today we will discuss the SIP vs Lump Sum and understand which is better way to invest?

The lump-sum investment route is a single large investment plan done by an investor at one time. In the SIP mode of investing, a fixed amount is invested at a regular interval of time, which can be daily, monthly, quarterly, or semi-annually in the mutual fund plan of your choice.

In this post, you can know the SIP vs Lump Sum investment plan- Which is a better way to invest.

Let us take an example if you wish to invest Rs. 12000 in a scheme for 1 year, and you selected the lump sum investment plan, and the total amount will be invested at the start of a plan.

If you prefer a Systematic Investment Plan(SIP), the total amount will be divided into the number of payments you want to make for 1 year and invest in a regular interval of time.

SIP vs Lumpsum – Which investment will give you good returns?

The profits will be dependent upon the stock market conditions. During upward trends, the lump sum investment in mutual funds manages to give relatively higher returns compared to the systematic investment plan(SIP) as the price of the scheme will increase every month.

In the downwards trend, investments made via a SIP generally provide better returns than a lump sum investment plan as the price of the scheme will decrease every month. You can check here SIP calculator in Mutual funds

If you can time the market, then a lump sum investment plan is best to choose, but most people cannot time the market as it is difficult, so choosing a SIP plan to ensure rupee cost averaging.

Advantages of SIP Plans vs Lump Sum investment plan

These are the advantages of choosing a SIP plan over a lump sum investment plan to invest in a mutual fund, which are

No need to time the market

we don’t need to watch the market daily to time it as in SIP if the market crashes, we will buy the same investment plan for a lower point and also will get more units. 

Rupee Cost Averaging

SIP helps to spread overtime during both rising and falling markets. In a lump sum investment plan, your money would buy fewer units of the best mutual fund when markets are up and more units when they are down.

Thus, a SIP lets you lower the average cost of your investment and reduce the risk of your investment.

Power of Compounding

Systematic Investment Plan allows you to increase your investment plan amount regularly by a fixed amount. You will get the benefit of compounding as you get the returns generated by your investment.

No worry about the market volatility

Markets can be highly volatile and can induce you to withdraw your money in a panic if you have made a lump sum investment.

This effect is less intense when you invest in a systematic investment plan because your money is spread out over regular intervals of time.

FAQs

Can I put Mutual Fund SIP Request for Sell transactions?

No. You can put SIP Requests for buying orders only under the Mutual Fund Systematic Investment Plan.

Can a minor start SIP in Mutual Fund?

Yes, minors can also buy mutual funds as there is no specified age to buy a mutual fund. With the help of a parent or guardian, a minor can build a portfolio.

What is the least investment one can start SIP in mutual fund plan?

All mutual fund companies have different minimum investment amounts. Newly several mutual fund companies have reduced the minimum amount to 100 Rupees, but some investment plans start with a minimum of 500 Rupees.

Which funds are more suitable for a Systematic Investment Plan?

SIP are better for retail investors looking to invest in equity. A systematic investment plan makes it more helpful if investors are looking to invest in equity-oriented schemes.

However, if you are saving capital for a short term purpose like 1-2 years, then you can also look at buying in debt-based mutual funds through the systematic investment plan.