lumpsum investment, lumpsum mutual fund, mutual fund lumpsum calculator, mutual fund investment, invest in mutual funds, SIP vs Lumpsum, lumpsum calculator, invest in lumpsum
Are you confused if you should go with the SIP way of investing or lumpsum? Don’t worry, a lot of investors are. This article aims to serve as an investment guide between SIP and lumpsum mode of investment. Read on to understand the differences between SIP vs lumpsum.
What is SIP?
Sip, short for Systematic Investment Plan is a way to invest in mutual funds. Under this mode of investment, regular and systematic investments are made towards mutual fund schemes on a specific date at regular intervals in preferred mutual fund schemes. SIP offers the flexibility to investors to choose their investment amount, periodicity, end date, etc. As an investor, you can invest as low as Rs 100 in mutual funds through SIP. The SIP mode of investment helps inculcate financial discipline among investors.
How does SIP work?
Let’s assume Rajesh invests Rs 5000 in ABC mutual fund schemes on the 5th of every month. Now, every month Rs 5000 would be debited from his bank account and used to buy mutual fund units of the ABC scheme. The number of units acquired on a particular day would be based on the NAV (net asset value) of the ABC scheme on that day. Now, there would be times when the markets would be either bullish or bearish. But Rajesh would continue to invest in the ABC scheme irrespective of that. Hence, SIP investments allow investors to enjoy market dips. This averages out the cost of the mutual fund units purchased over time. This concept is known as Rupee cost averaging. If you wish to understand the future value of your mutual fund investments through SIP, you can use a SIP calculator for the same.
What is lumpsum?
Under the lumpsum mode of investment, an investor invests the entire investment amount in mutual funds in one go. Usually, this mode of investment is preferred by individuals who have a significant or lumpsum amount of cash lying around. The lumpsum mode of investment has lesser variables as compared to SIP investment and has a higher potential to generate substantial returns. If you wish to understand the future value of your mutual fund investments through lumpsum investment, the lumpsum calculator can come quite handy.
Which is a better investment tool for better returns?
There is no universal answer for this. Whether you decide to move forward with SIP investment or lumpsum investment is entirely dependent on your portfolio. Some factors that can sway this decision are the availability of surplus cash, expected regular income, investment horizon, risk appetite, financial goals, etc. Both SIP and lumpsum mode of investment has their own sets of pros and cons. Analyse them and understand which will work out better for you. You can also take the services of an expert or a financial advisor to help you with the same.
Note that SIP or lumpsum are not financial vehicles in themselves. Hence, you do not invest in SIP or lumpsum. Rather, you invest in mutual funds through these investment tools. Happy investing!
