Lumpsum vs SIP – Which Mutual Fund Investment is Better?

Planning to invest in mutual funds India? You would have certainly come across the following two options – lumpsum and Systematic Investment Plan. Many first-time investors have a hard time deciding between the two options – should they choose to purchase the number of units at one go or should they invest a specific sum of money at regular intervals? Well, if you’re also on the same boat, let’s make a fair comparison of the two to help you make an informed choice.

#1 Based on the need for monitoring the market

As an investor, you may think that entering into the market at any given time of the market cycle will generate you profitable returns; however, that is only true in the case of SIP. With such an investment type, you need not watch market movements as closely. The same is not true for one-time investments – you need to enter the market when it’s running low for your investment to generate lucrative results.

#2 Based on investment requirements

The next important factor you’d like to consider is none other than your personal funds and their limitations. When it comes to Systematic Investment Plans, you can start investing with as little as Rs. 500. On the other hand, for single-go investments, most mutual funds schemes set the lower limit at Rs. 5000. Depending upon your budget, you can choose your investment style.

#3 Based on the averaged costs

Here, the Systematic Investment Plan scores well than lumpsum investments. Since units can be purchased during different market cycles, this evens out the average cost per unit over the entire investment horizon. As a result, a greater number of units can be purchased when the market is low and sold when the market is performing well. This compensates for any purchases made when the market is high.

#4 Based on the returns

If we’re honest, we can agree that the returns you make on your investments will be the key driver while choosing your investing mode. When it comes to SIP vs. lumpsum, the prevailing market conditions will have a lot of say – where Systematic Investment Plans provide better returns during falling market conditions; one-time investments give higher returns when the market is experiencing a high.

Under stable market conditions, the former offers better returns due to the greater compounding effect – the interest earned in a Systematic Investment Plan is reinvested in the scheme.

#5 Based on financial discipline

Choosing to invest in Systematic Investment Plans will help you inculcate the habit of savings as you will need to set aside a fixed amount at regular intervals. For this, you can even have your bank auto debit the specified amount at regular intervals. So, if savings is a habit you wish to develop, consider investing in a Systematic Investment Plan. You can now easily invest in mutual funds online and go through all the available options with the help of investment apps like Tata Capital Moneyfy App – compare between different funds and choose the one that best suits you based on your risk profile, investment approach, and other such needs.

Leave a Comment