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SIP Vs Lumpsum: Here's how you can make the decision

Systematic Investment Plan (SIP) and lump sum investment are two ways of investment in a mutual fund scheme. There is often a debate regarding which one of the two modes of investments is better. The answer to that is not as black and white as you may think.

The fact that the two modes of investment exist implies that there are investors for whom SIP works better, and then there are others for whom lump sum works better. Let us look at the features of SIP and lump sum investments in detail-

What is SIP, and what are its advantages?

SIP is the mode of investing in mutual fund schemes wherein you choose the fixed amount you want to invest in a scheme and at what interval do you want to invest. For example, you may choose to invest Rs 5000 every month, or you may also choose to invest Rs 10,000 every quarter; as per your convenience. At your chosen frequency, the investment amount gets deducted from your bank account and is used to purchase units of the mutual fund scheme. The purchase happens on the basis of the NAV of the scheme on that day, i.e. the per-unit cost of that scheme.

To know more about NAV and how it affects your SIP investments, click here.

Advantages of SIP:

Investment Discipline

SIP inculcates a regularity in your investments in line with your financial goals. It eliminates the need to wait for a big investment amount to get accumulated in order to invest. The mandate of deduction from the bank account helps in bringing in the required discipline.

Rupee Cost Averaging

For someone who is not well versed with the factors at play with volatile markets, to keep track of the market cycles can be difficult. Investing through SIPs helps you to invest the same amount of money to buy a higher number of units when the markets are low & vice versa. Over a period, you'd notice that your risks & costs get averaged out. This advantage is called Rupee Cost Averaging

Power of Compounding

When you invest in mutual funds, the magic of compound interest has the potential of enhancing your gains in the long-term. Once you start a SIP, your returns can increase exponentially if you stay invested. You can use our SIP calculator to understand the Power of Compounding better with your own life examples.

To read more about the benefits and features of SIP in detail, click here.

What is a lump sum investment, and its advantages?

As the name suggests, lump sum investments are investments made in mutual fund schemes at once and in bulk. Now, unlike SIP wherein you don't need to time the market provided you are regular with your investments; in the lump sum mode, you may need to. This is to look for an appropriate time to invest in order to maximize the number of units bought.

Advantages of lump sum investment:

Control over your investments

Unlike SIP, wherein you will continue to invest in one scheme for long-term; in lump sum, you can invest in different schemes. Depending on the market conditions, you can make a choice. Power of Compounding: If you are able to time the market and invest when the market is low, the benefit of compounding will be better in the case of lumpsum than that of a SIP. The longer you stay invested, the better returns you may expect. SIP can help you in being regular and countering market volatility, but lump sum investment may help you fetch better returns if you invest wisely.

Benefit of market expertise

The advantage of Rupee Cost Averaging in SIP works wonders for investors who cannot time the market, but if you can, then lumpsum investment can help you reap the advantage of the market volatility. When the market is dipping, and the NAVs are low, a lumpsum investment will fetch you a much higher number of units as compared to what a SIP will fetch you over a certain period. This is because SIP will also encounter stages of market appreciation when the number of units bought will be lower.

Which one is more beneficial to you?

This is like choosing between a mode of transport between the source and your destination. There is no 'right' choice; there are modes that work for you, and then there are modes that don't work for you. Likewise, this choice between SIP and lump sum investments entirely depends on your investment objectives, amount of investment, tenure of investment, your risk appetite and above all, your financial goals.

The common thread that binds all mutual fund investments is the call to stay invested for as long as you can. The longer you stay invested for, the better can be the returns. Now, whether you want to invest in small chunks or in multiple big dollops, is a choice you make depending on your capital availability and the mode you prefer.

To begin investing, click here!

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Disclaimer:
Helpful information for investors: All Mutual Fund investors have to go through a one-time KYC (know your Customer) process. Investors should deal only with registered mutual funds, to be verified on SEBI website under 'Intermediaries/ Market Infrastructure Institutions'. For redressal of your complaints, you may please visit www.scores.gov.in . For more info on KYC, change in various details & redressal of complaints, visit mf.nipponindiaim.com/investoreducation/what-to-know-when-investing This is an investor education and awareness initiative by Nippon India Mutual Fund.

The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, associates or representatives (“entities & their associates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their associates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this document. Language Disclaimer:
While utmost care has been taken in translating the article into respective regional language(s), in case of any confusion or difference of opinion, article available in English language should be deemed as final. The article provided herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional advice for the readers. The document has been prepared on the basis of publicly available data/ information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, associates or representatives (“entities & their associates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their associates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of loss of profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this article. "ABOVE ILLUSTRATIONS ARE ONLY FOR UNDERSTANDING, IT IS NOT DIRECTLY OR INDIRECTLY RELATED TO THE PERFORMANCE OF ANY SCHEME OF NIMF. THE VIEWS EXPRESSED HEREIN CONSTITUTE ONLY THE OPINIONS AND DO NOT CONSTITUTE ANY GUIDELINES OR RECOMMENDATION ON ANY COURSE OF ACTION TO BE FOLLOWED BY THE READER. THIS INFORMATION IS MEANT FOR GENERAL READING PURPOSES ONLY AND IS NOT MEANT TO SERVE AS A PROFESSIONAL GUIDE FOR THE READERS."

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