SIP Vs Lumpsum Investment: Choosing The Best One

Are you still waiting for that perfect investment? Do you want to make a worthwhile choice? If so, know first of all that your investment must be in sync with your investment profile. In other words, your investment must be in line with your income, expenses, financial goals and  risk profile. Now, it would be up to you to choose between SIP or systematic investment plan or a lump sum investment on the basis of affordability. 

If you have always wanted to invest in a tax-saving mutual fund, know that ELSS or equity-linked savings scheme would be the best means to do so as it can help in saving taxes according to Section 80C. Having said that, you can invest in mutual funds by two means, either SIP or one-time lumpsum investment. Let us shed light on both one by one. 

Lumpsum Investment

 A lump sum investment is done one time. In case you have a significant disposable amount by your side and possess higher risk tolerance, opting for a lump sum investment would be a good option for you. For instance, if you have Rs. 1 Lakh in hand, you could easily invest it as a lump sum investment. 

SIP

According to their name, SIP or systematic investment plans demand investment in a small amount on a regular basis. For instance, you can easily pay a small amount like Rs. 10,000 every month in 12 instalments. You can choose to go with SIP if you do not possess a lump sum amount in hand. 

Why SIP Is a Popular Choice Compared to Lump Sum Investment?

Over the years, SIP has become a preferred choice among investors. Some of the vital reasons are as follows:

• Market Watch Not Required

Usually, budding investors do not possess much idea of when to enter the investment market. It is important for everyone, especially the newbies, to know that investing in a huge amount in one go or as a lump sum always comes with the risk. If the market is high, one can also benefit in a significant manner, but one can lose a substantial portion, in case the market crashes. In the case of SIP, there is no massive risk like such. In SIP, the money is spread over a period and only some part of your whole investment faces market volatility. 

• Rupee Cost Averaging

With the help of SIP, one can invest across various market cycles. When the market falls, one can buy more units. When the market is rising, one can buy fewer units. This helps in lowering the per-unit cost of buying the units. This phenomenon is referred to as rupee cost averaging.

• Investing Habit 

One can invite the habit of being financially disciplined due to SIP as investing through it demands an investor to keep a fixed sum aside on a regular basis. 

• Perfect for Beginners 

If you have just begun your professional career then starting an SIP will help you enter the investment world without any hassle. You can easily gain exposure to equities with a low amount like Rs. 500 per instalment. Once you have gained experience, you can easily try your hand at the riskier equity schemes that suit your investment needs. 

• Superior Past Performance

Remember, in the past, SIP investments have earned higher long-term (more than 5 years) returns as compared to lump-sum investments so SIPs have a better chance. 

So, what are you waiting for? Now that you know what to choose, go ahead and start planning your investment right away!   

Also read: 

Is Daily SIP Better or Monthly SIP?

7 Real Facts Why People Love Investing In SIPs

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.