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SIP Vs Lump Sum – Which Mode of Investment is Better?

Mutual fund investments can be lumpsum or SIP. Learn about the different investment methods and how you can get the best returns.
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Investing in mutual funds is now increasingly common. As of July 2020, India's total number of mutual fund accounts stood at 9.21 crore, marking the 74th consecutive monthly increase in India's mutual fund investors. There are two different types of mutual fund investments, Lumpsum vs SIP plans.

Investors fairly enjoy the wealth constructing capacity that mutual budgets have, each via Lumpsum investments and SIP investments. The most obvious distinction between SIP and Lumpsum is the regularity with which they are paid. 


Mutual fund investments may be made on a daily, weekly, monthly, quarterly, or half-every year foundation via systematic funding plans. Lump-sum investments may be understood because the huge investments are made best as soon as for a let’s say unique purpose. Furthermore, the desired minimal funding varies. The great component is, you'll begin SIPs with as low as Rs.500 every month, on the opposite facet of the balance, the lump-sum investments typically might require at least Rs.1,000. In India, the number of SIP accounts in mutual funds exceeds 3.27 crores.

Benefits of Investing via SIP

  • Flexibility: A SIP is considerably more flexible than a lump sum investment. You have the freedom to change the investment amount or even stop and resume the SIP, depending on your preferences, market conditions, and more.
  • Costs: Investments under SIP are made in installments or at regular intervals. With SIPs, an investor can invest as little as ₹ 500, to begin with, in many mutual funds. Therefore, a SIP is ideal if you want to average your costs over time.
  • Safety: A SIP lowers risks because of its flexibility. Investors do not need to worry about entering the markets at the wrong time as the price averages over the long-term.
  • Ideal Investors: A SIP is appropriate for all investors. Investors looking to take gentle steps in their investing journey and have a steady cash flow can invest via SIPs.
How SIP investments Calculations work
MonthInvestmentNAV (₹)Unit PurchasedAverage Price (₹)
Month 1₹ 5,0001050010
Month 2₹ 5,0009555.559.47
Month 3₹ 5,00011454.549.93
Month 4₹ 5,0008.5588.239.53

Benefits of Investing Via Lump Sum:

  • Returns: In a lump sum investment, one generally invests a larger sum of money at once. Since this is a one-time investment, it makes sense that it is larger for it to generate substantial long term returns. There are risks in large one time investments (such as being locked in at a high price). But, assuming you proceed correctly or have a long-term horizon, the returns from lump sum investments can be advantageous.
  • Ideal Investors: Lump sum investments are appropriate for investors who may have a large sum of money for investing. These may be accumulated savings for the years. They may be returns from an investment exit, such as a property sale. They may even come from a large bonus. Lump sum investments are also ideal in a market that's continuously growing and not volatile.

Comparison of the Two Methods- SIP Vs Lump Sum

Some people prefer investing a small amount and doing it periodically. On the other hand, there is a section of people who believe in investing a lump sum amount, which often is a larger amount all at once. A detailed comparison of the two is given below:

It Isn't Necessary For Investors To Keep A Close Eye On The Market

Since lump-sum investments represent a substantial commitment, investors must know when they are entering the market. Investing in a large sum at a market bottom yields the best results. A systematic investment strategy, on the other hand, allows you to invest at various times throughout the market cycle. Investors that make a lump-sum investment don't have to keep track on market fluctuations as attentively.

Investing Requirements Are Reduced.

As previously noted, SIPs can be started with as low as Rs. 500 every month. Talking about the Lump-sum investments, it would often require a minimum investment of about Rs.1,000, with most mutual funds in India requiring a minimum investment of Rs.5,000. A SIP calculator is a tool that allows investors to calculate and predict their investment return.

Averaged Costs

The cost per unit is averaged across the whole investment horizon because SIP leads to mutual fund purchases throughout numerous market cycles. More units are purchased during a market low to compensate for purchases made during a market high. This could be advantageous in terms of coping with market volatility and maintaining a stable pricing structure. When the market is operating well, units can be sold.

The Mighty Power of Compounding

SIP investments produces interest, which is re-invested in the plan. The compounding effect is a significant contributor to the increase in returns.

Instils A Sense Of Financial Responsibility

Saving regularly with SIPs may aid you to develop that habit. The bank can automate your investing instructions at any time you want.

A few Factors to Consider Before Investing

Investment journey can be a little confusing and need a lot of pondering at times. When on the journey, you might consider the following factors before taking up the next steps. 

  • The Amount that you have: If you have a substantial sum of money to invest, a lumpsum investment may be the best option to avoid wasting it.
  • What is the Market's Timing Like: Larger returns can be obtained by investing in a bulk sum at a market bottom. A SIP might help spread the risk if you're having trouble recognising cycles.

What is the Type of Fund: Market volatility, as previously noted, has a considerable impact on equity fund performance. Debt funds are less susceptible to market volatility and are supposed to produce similar outcomes whether you invest in a lump sum or over time.

A lump sum investment brings more risk than a SIP, due to a lack of opportunities to average your costs over time. Sure, it can be more rewarding, too, if investors invest low or when they have long time horizons.

To determine which method ultimately is more beneficial for you as an investor, ask yourself the following questions:

  • Are you bullish on the market right now? Do you anticipate extended gains in the future?
  • Do you have disposable income that you can channel into monthly investments?
  • What is your risk appetite?

To get started on your mutual fund investment journey, lumpsum or SIP, head over to Glide Invest.

FAQs

Q1: Can SIP be beneficial in the long run?

A1: Your investments and savings will be more disciplined with a SIP. By opting for this SIP, you will be able to invest at regular intervals each month, resulting in automated savings before you spend your money. It gradually but surely instils financial discipline while also assisting in realising future profits.

Q2: Is a systematic investment plan (SIP) preferable to a lump-sum payment?

A2: If you have a small but steady amount of money to invest, SIPs may be a better investment alternative for you. Lump-sum investments may be advantageous for those with a large investment and a high risk tolerance.

Q3: Is it possible for me to pay in a lump sum every month?

A3: You will gain from rupee cost averaging if you can invest a large sum every month without fail (that is, it helps you to average your purchase cost). Some investors go beyond budget and don't make any investments. Some investors are afraid of the market and put off investing.

Q4: If I miss out on a SIP payment, then what?

A4: It's worth remembering that missing a SIP payment is relatively common. One of the most common causes for investors forgetting to pay their instalments is a lack of funds in their bank account. However, you should not be concerned if you miss a SIP instalment. In such a circumstance, your investments will continue.

Q5: How will a Lump Sum mutual fund work?A5: A lump sum investment is when an investor invests all of the money he or she has. An example of a lump sum investment would be to invest all of one's money in mutual funds or other investment vehicles.

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