Should you invest in SIP or in lump sum?

A SIP or systematic investment plan of mutual funds is an arrangement that enables investors to invest a pre-fixed amount at a pre-fixed frequency in mutual fund schemes. If you invest in SIP, it can help you build long-term wealth due to the benefit of the power of compounding and rupee cost averaging.

In SIP mutual fund, the investor chooses an amount to be periodically invested in mutual fund schemes of his/her choice for a given period of time. The frequency can be daily, monthly, yearly or quarterly, based on the convenience of the investor. Once a mandate (OTM) is given by the investor at the beginning of the SIP, each month the same amount gets debited from their bank account, without having to worry about it. Hence, it is an easy, seamless, convenient and transparent process that investors can continue for a long time period, in order to attain a substantial financial corpus through mutual fund investments.

There is another popular way of making mutual fund investments – through the lumpsum method. But, both ways are distinct and here are the reasons why:

Flexibility – SIP is a more flexible mutual fund investment method compared to the lump sum option.

Financial Discipline – SIP mutual fund option can inculcate financial discipline in investors as they get into the habit of investing in a planned manner. But, in the case of lumpsum, this is difficult because the investment is done in one go.

Cost of investment – In case of SIP mutual funds, the cost is less due to rupee cost averaging but the lumpsum method may entail a high cost as it is a one-time investment method.

Time of investment – SIP investment is quite immune to the volatility of the market whereas it matters a lot in case of lumpsum as it is subject to market conditions.

Horizon – To invest in SIP, a long-term period is ideal as one can benefit from the power of compounding. Whereas a one-time investment may need timing if one is looking for long-term.

Required risk appetite – To invest in SIP or in lumpsum, mutual fund schemes should be selected based on investors’ risk appetite.

Need for market monitoring – In the case of SIP, investors need not think about market high lows as through SIP process units are accumulated at an average cost whereas in the case of one-time investment, one must consider market levels etc. to get optimized returns. 

Goal planning – if you invest in SIP, the same can be tagged to your financial goals. If you want to plan your financial goals, you must use a SIP calculator,   

Investments in a SIP mutual fund come with its own benefits. You must invest in mutual funds by choosing the right mutual fund schemes. To calculate SIP returns, one must use the SIP return calculator and tag mutual fund SIP with financial goals.

In this read, we took a detailed look on SIP mutual fund, its difference from the lumpsum form of investment in mutual funds and more. The choice of method will differ among investors but both ways are equally viable to head toward your financial goals.