SIP investment is sort of investing fixed amount in a mutual fund scheme on a regular basis. This depends on the investor how one wants to invest their money. Mostly, salaried investors can invest on monthly or quarterly basis in a SIP plan.
SIP has become popular because it gives access to the people to fix the money in a disciplined manner. SIP investment does not get affected much if the market goes down. The nature of the market volatility does not impact SIP amount.
Few things to consider before making minds for investment:
- There is no guaranteed comparison between SIP investment or the lumpsum investment.
- Both of the investment types are different in nature.
- Market studies have drawn this comparison to make people understand the difference of these two types of investment over a period of time.
- Both investments are done on the different market level; hence, its capital market returns are different as well.
SIP vs. Lumpsum Investment:
There is nothing like that one gets better edge than others. This depends on the type of investment and how market profits at that point of time. Often, SIP gets better return value than the lumpsum amounts and sometimes, the other.
SIP investment for monthly or quarterly period can give better returns provided an investor purchases it at lower valuation. In such scenario, there will be possibilities to gain better returns after a point of time. On the other hand, in case of lumpsum amount, investor has to purchase the large units and for that, they can lose amount if the market goes down.
For an example, a person has planned to invest 1 lakh for 15 years to get the good returns at the end and the market falls next day at least by 4%. From different perspective, if the same person has planned to invest money on monthly quarter and the market falls by 4%. Will the latter be more affected by the former ones? It depends on the person’s asset or type of income an individual possesses. SIP often does not directly hit because it takes money either on monthly or quarterly basis. For the salaried individual, the SIP investment would work better than the lumpsum one because it can fetch risks if the market gets a huge dip.
Benefits of SIP:
- The investment amount does not get much affected in the SIP scheme due to the fleeting nature of the market.
- SIP investment brings discipline into the nature of the investment due to its process of money getting deducted from bank every month.
- If the market is down, SIP lowers the average cost of the investment by putting money in more units. This helps an investor to gain profit in the long run.
- The most important thing in the SIP investment is its flexibility. An individual can change, stop, or withdraw the amount at any point of time. This could be considered as the biggest challenge while investing through lumpsum amount.
When to choose SIP or lumpsum:
There is no fixed timing to choose SIP or lumpsum; it depends on the individual and how much cash they have. For the lumpsum amount, the salaried person can go ahead and invest their amount earned from extra profits or bonus. In this way, they will not be stressed if the market gets volatile for few days or years.
For SIP, there is no right time; an investor can open SIP any time. SIP is a good option if the investor is trying for the equity investment for a longer term. It returns the good amount and does not affect much if the market goes down. Why SIP is considered as a safe and sustainable investment type because it brings the financial planning in order and anyone can reap the benefits of it for a longer period of time.
What if a salaried person wants to invest in lumpsum type because of the market graph going upwards. There is a possibility for transferring the same money if the market fails. STP is the process through which one can transfer the money to another mutual fund. An individual can choose any short-term debt fund to invest with.
Overall, through this comparative analysis, one thing is majorly noticeable that an investor needs to his/her financial analysis before investing the money. Both options are available; this is nowhere suggested that one is always better than others. An individual needs to understand the financial portfolio and invest the amount as per the requirement.
Both options have their own benefits and that is why this is impossible to ascertain which one is better than others. This has never been SIP vs. Lumpsum. An individual needs to choose the option as per their financial objectives and planning for the future.