SIP vs. Lump Sum Investment: Which One is Better?

Making an informed and appropriate investment decision is crucial to improving your portfolio.

You can either invest in mutual funds by spreading the investment over a stipulated period of time via SIP (Systematic Investment Plan) or invest in one-time via a lump sum investment plan.

One’s investment portfolio may vary depending on the form of investment. Which approach of investing in mutual funds—lump sum vs. SIP—is more advantageous?

Let’s get to the depth of this question that perplexes any investor considering investing gradually in mutual funds.

Lump Sum Investment vs. SIP: Key Differences

When it comes to lump sum vs. sip, you must understand their key differences to make an informed investment decision.

Here is a table for your better understanding:

Lump Sum Investment SIP Investment
These are one-time investments. You must know all market trends or cycles to determine the ideal time to make a lumpsum investment. A bearish market is an ideal time to make a lumpsum investment. These investments are recurring in nature. That’s why you can invest in SIPs irrespective of the market trends or cycles. If you have a steady income, this is an ideal investment to opt for.
This investment option is ideal for investors with high-risk tolerance and years of investing experience. The minimum investment amount for a lump sum mutual fund investment is INR 1000. SIP investments come with minimal entry requirements, making them an ideal investment option for all beginners. The minimum amount to get started with a SIP investment is INR 500.
The principal amount doesn’t change, even though you can reinvest the earned interest and take advantage of compounding. You have the option to reinvest interest from SIP investments. The power of compounding contributes to higher profits when paired with newer installments.
It alleviates the possibility of over-expenditure and helps you save money. It will inculcate a habit of saving money every month.

When To Invest In SIP?

An individual with a steady salary can decide to invest in SIP. But why should they only invest in SIP?

That’s because SIP is a strongly advised mutual fund investment option for individuals who intend to invest in equity funds for a longer period.

Plus, even if there’s a falling market, your SIP investment won’t get affected, and it will perform well.

When To Invest In Lump Sum Investment Plans?

Lump sum investment plans are ideal for individuals who intend to invest in debt funds for a shorter duration. After all, it won’t make sense to opt for SIP for debt mutual fund investments.

Instead, you should opt for a lump sum investment plan to make a one-time investment in any mutual debt fund. Why so? Because debt funds come with a recommended range of fewer than three years.

Lump Sum vs. SIP: Things To Consider Before Making an Investment Choice

When choosing your investment strategy, consider these aspects:

  • Market Timing: Lump sum investments will yield larger profits during a market trough. A SIP will assist in spreading the risk if you fail to recognize cycles.
  • Amount: A lump sum investment is ideal if you hold a large sum of money in your savings account. Investing it all at once may be the best course of action to avoid using it all up. On the other hand, SIP might not be as appropriate for a paid person attempting to develop a saving habit.
  • Type of Fund: Market volatility significantly influences returns for equity funds. Debt funds are less susceptible to market fluctuations and will probably offer comparable returns for both lump sum and SIP investments.

Final Words

Investing in mutual funds via a lump sum plan or SIP depends entirely on your risk tolerance. Before putting your hard-earned money anywhere, carefully examine the mutual fund, its performance in terms of returns, the advantages of its payment system, etc.

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