Money

SIP OR LUMPSUM: WHICH OPTION WILL GIVE BETTER RETURNS IN MUTUAL FUNDS?

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 lumpsum mutual fund. Investors are often confused about the right mode of investment that has the potential to 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 OR LUMPSUM

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 SIP mode of investing, an individual assigns regular, fixed amount of money to their desired mutual fund schemes on a regular basis for a pre-determined period of time. On the contrary, in case of lumpsum investment, the individual invests the entire investment amount in one go. Whether you opt for SIP or lumpsum mode of investment must largely depend on whether you have a significant amount of liquid money lying idle or if you have 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 the some of the basic differences between lumpsum and SIP mode of investment:

Factors Lumpsum SIP
Cashflow Once Regular
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 its own sets of advantages and drawbacks. While SIP investments are believed to be more convenient and cost-effective, lumpsum investment has the potential to 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 the favor of an investor. SIP maybe 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.

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, just make sure that you run it through your fund manager or mutual fund advisor. So, what are you waiting for? Invest in mutual funds today and cater to your important financial goals such as your child’s higher education, your retirement planning, etc. Happy investing!

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