Sip vs lump sum
Introduction
If we talk about the SIP and lump sum, then these are the two ways to invest in the stock market. All investments that a person is going to make should depend on their investment profile, which includes their expenditures, income, financial goals, and risk profiles. A person can choose either SIP(systematic investment plan) or lump sum payment but it should depend on the affordability
Returns on these two investments depend on the condition of the stock market. During upside trends, the lumpsum investment gives higher returns and during the downward falling of the market, SIP gives better returns in comparison to lump-sum investment.
The method of investing fixed sums regularly in a mutual fund scheme is called SIP(systematic investment plan). In SIP units are allowed to buy on a given date each month. So that the person can execute a saving plan for themselves.
Advantages of SIP:
- Disciplined investment
- Alleviation of risk
- Flexibility
- Hassle-free
What is a lump sum?
One way of investment into mutual funds is called lumpsum. Usually, this investment is taken by big investors who are likely to invest in the long term.
Advantage of lump sum:
- Investment of Big Amount.
- Ideal for Long-term Tenure.
- Convenience.
Which option is better SIP or lumpsum?
If there is a need to compare the benefits of sip investment or lumpsum investment then it usually depends on the condition of the stock market. During the upward mode of mutual fund investment lump sum gives a higher amount of returns and the same as when there is a fall in the market then the SIP gives better results in comparison to lumpsum investment.
Benefits of SIP over lump sum investments:
- Rupee cost averaging:
The lumpsum investment will be able to buy fewer units of mutual funds when the trend in the mutual funds market is high and more when they are down but SIP helps to spread over time during both upwards and downwards markets. Therefore, SIP enables a person to lower down the average cost and risk of the investment, or this is known as rupee cost averaging.
- Power of compounding:
With the SIP mode of investment, it enables to increase the investment amount regularly by a fixed amount and enables the benefits of compounding as the returns are earned and generated by a person’s investment. or this is known as the power of compounding.
- Less stressful:
The SIP mode of investment is less stressful in comparison to lump sum investment and it will also help a person to stay invested in the mutual fund market. In the mode of lump-sum payment mode, a person can be highly volatile and induced to withdraw his money in panic, but in the case of SIP, there is no panic because the money is spread out over time.
- No need to constantly watch the market:
It is difficult for non-experienced investors to decide when to enter the market. So when a person is investing in lumpsum mode then there are chances to lose a substantial portion when the market crashes, and accordingly, it also stands out to be beneficial when the market is high. But with the sip mode of payment, money is spread over time and only some part of the entire investment will face market volatility.
