Investing is the key to loading your personal treasury and securing your finances. There are many sectors of investments. There are stocks and newly emerging cryptocurrencies as well as mutual funds. Mutual Funds become a perfect financial vehicle for capital gains through their access to diversified portfolios managed professionally.
However, it isn’t only the sector of investment that comes with choices. Apart from which mutual fund schemes to invest in, one has the option to choose how to invest in them. The investor is at liberty to invest in their mutual funds through a one-time or a lumpsum investment or can choose to stretch out the payment over a longer duration with the SIP or a Systematic Investment Plan. The different modes of investment can impact one’s portfolio. Thus knowledge of these investment routes becomes crucial before engaging with mutual funds
Understanding the difference between SIP and mutual fund lumpsum
SIP and lumpsum investments allow investors to sow and reap the benefit of potential capital growth through mutual fund investments. However, we must look into the differences between the two:
● Time of Investment
When one contributes through S.I.P, a proper amount of cash gets charged from their bank or Demat accounts at recurring intervals. The investors must plan whether they wish to contribute weekly, monthly, quarterly, half-yearly or annually, and so on. When the dates are chosen, the investments occur regularly. However, lumpsum investments are made in bulk, one-time, in a particular scheme. This is one of the major difference between sip and mutual fund lumpsum.
● Minimum investment
Another difference between sip and mutual fund lumpsum is the amount for a minimum investment in each case. Investing in SIPs can begin as low as Rs.500 every month. With regard to that, a lumpsum investment generally needs at least Rs.1,000 to start. However, Rs.5,000 is generally the lower limit set by most mutual funds in India. Thus, the cost of investment in SIPs is lower than lumpsum investments.
● Market monitoring
The difference between sip and mutual fund lumpsum is that SIP takes little monitoring as the bank automatically credits from your account at preset intervals. Besides, SIPs give investors the window to enter the market at various market cycles. The lumpsum investment mode requires close monitoring of the market that SIP investors can slack at. Since the risk of a bulk commitment is huge, the investors need to keep a close eye on the market and most importantly need to monitor when the market is at its low so that they can invest the maximum and also garner maximum returns.
One other difference between sip and mutual fund lumpsum is that SIP allows one to stop, change or withdraw from their ongoing plans whenever they feel right. Lumpsum on the other hand is more suited to long-term plans.
● Volatile Market
In a volatile market, SIP provides the security of averaged costs as the purchases during market lows evens out the purchases at a market high. However, low market trends only offer a window for market investments and put returns at risk. This is one of the difference between SIP and mutual fund lumpsum.
Thus, these are the key difference between SIP and mutual fund lumpsum. If you wish to know more on these you can visit https://navi.com/blog/sip-vs-mutual-fund/ for more information.
What should you choose between SIP and Lumpsum in mutual funds?
It is to be noted that the choice of the mode of mutual fund investment is up to the individual and the amount of capital the person has to invest. Not only that, one must estimate and decide on the duration of their investments and their loss tolerance margins. However, in a continuously growing market lumpsum does seem like a great bargain for high returns.
Here are some advantages of lumpsum Investments:
● Bulk money
The lumpsum mode allows investment of a sizable amount. Thus, in case of dormant savings in your account or a bulk amount that doesn’t ensure desirable returns at the bank, lumpsum comes as a lucrative choice. Thus, investing more at a market low exponentially increases your investment value during an upward trend.
● Long term
A lumpsum investment is better to be undertaken as a long-term investment. One can consider their investment tenures to be a minimum of ten years. This can help them plan for their specific financial aims such as investing in their children’s education fund or a fund planned for retirement.
● Debt funds
Debt funds aren’t impacted much by market trends. They are likely to provide one with similar returns for both lumpsum and SIP routes. Debt Mutual Funds are ideal for investors who wish to invest for a short-term in a mutual fund but in a lumpsum route. However, a lumpsum mode can be recommended for investments in debt mutual funds as the popular bracket for debt funds does not exceed three years.
Despite all suggestions, one must keep in mind their financial goals and not get caught up in the game. Even after all the knowledge, mutual funds are subject to market risks and one must evaluate the pros and cons of every investment they make.