Whenever we think of investing in mutual funds, the question comes to us that what is the best way to invest in mutual funds, lump sum or sip?
While investing through lump sum, you need to pay a big amount, while in SIP investment you can make very small payment at regular intervals.
Both of these investment strategies have some advantages as well as disadvantages. Basically, a lump sum investment is best suited investment for existing investor whereas Sip is better for new investors who are not very well aware of ups & downs of market, because it helps in rupee cost averaging in both bull & bear markets.
Both of these investment strategies have some advantages as well as disadvantages. Basically, a lump sum investment is best suited investment for existing investor whereas Sip is best suited for new investors who are not very well aware of market ups & downs because it helps in rupee cost averaging in both bull & bear markets.
Difference between Lump-sum & SIP:
· Investment timings:
In Lump sum strategy, investments are made on one time basis and investors need to look out for market cycle to pick out the right time to enter, but in SIP, investments are made on a regular basis and in different cycles of market so the investor does not need to look market on regular basis to track the market trends.
· Rupee cost averaging:
Lump sum investment does not enable its investors to average the rupee cost, but SIP helps investors to average the cost when markets are trading at lower levels.
· Investment requirement:
Investor can invest through Lump sum with minimum required amount of 5000 rs. But investor can start investing in SIP with minimum sum of 500 rs. Per month.
· Ideal for investor:
Lump sum is more suitable for existing and expert investor because it needs big amount to invest because they understand the market cycle and its volatility. Whereas, new investor who are not aware of market volatility can start their initial investment through SIP as it need less amount to invest and they can also invest in different phases of market.
· Money Saving habits:
SIP keeps saving habit in investors to save a fix amount at regular intervals. A lump sum investor can also invest money to avoid extravagance.
· Investment brings discipline:
SIP brings investment habit as well as investment discipline to investors as their SIP amount is automatically deducted from their bank account every month.
Conclusion:
This is completely depends on the choice, personal requirements and risk appetite of investor whether they want to make their investment in mutual fund through lump sum or SIP. Basically from the above discussion it is clear that SIP is somehow better than Lump sum as it delivers slightly higher returns as it invests in every cycle of market. But it does not matter by which mean you are investing but the matter is that you are investing something.
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