Some questions are immortal, even in the world of investing. They keep haunting investors from time to time. One such everlasting question is whether to go forward with SIP mutual fund or lump sum mutual fund. Investors are often confused about the right mode of investment that can offer better returns in mutual funds. This article aims to solve this quandary for investors and act as an investment guide for mutual fund investments.
SIP (Systematic Investment Plan) and lumpsum are two modes of investment that helps to invest in mutual funds. At the onset, there is a basic distinction between the cash flow of these investment modes. Under the SIP mode of investing, an individual assigns a regular, a fixed amount of money to their desired mutual fund schemes regularly for a pre-determined period of time. On the contrary, in lumpsum investment, the individual invests the entire investment amount in one go. Whether you opt for SIP or a lumpsum mode of investment must largely depend on whether you have a significant amount of liquid money lying idle or if you have a regular flow of money in your bank account. Let’s understand the basic differences between the two modes of investment.
SIP vs. Lumpsum
Following are some of the basic differences between lumpsum and SIP mode of investment:
|Risk profile||Moderate to high||Low to moderate|
|Time of investment||Subject to an investor’s financial goals and market volatility||Subject to an investor’s financial goals but somewhat immune to market conditions|
|If an investor has an uncertain future income||Preferred mode of investment||Not recommended|
|Investment cost||High (requires a significant one-time investment)||Less (thanks to rupee cost averaging)|
|Flexibility of investment||Low||High|
Which is the right mode of investment for your financial portfolio?
Both SIP and lumpsum mode of investment has their own sets of advantages and drawbacks. While SIP investments are more convenient and cost-effective, lumpsum investments can yield significant returns, especially during a bull market phase. However, bear in mind that it is not easy to buy at the exact bottom of the market and effectively time the market all the time. In fact, timing the market hardly works in favor of an investor. SIP may be an ideal choice for you if you are new to the world of investing. You can also use a mutual fund lumpsum calculator to understand the future value of your investments.
So, what are you waiting for? Whether you decide to go forward with SIP or lumpsum solely depends on your personal financial goals, investment tenure, and risk profile. Whichever mode of investment you choose to go forward with, make sure that you run it through your fund manager or mutual fund advisor. Invest in mutual funds today and cater to your important financial goals such as your child’s higher education, retirement planning, etc. Happy investing!