SIP vs. Lumpsum: Which is a Better Way to Invest?

Investors may not have only one type of investment; they have a diversified portfolio that gets them their desired returns and a bit more. However, out of all the investments made, mutual funds are also part of that portfolio. 

And do you know? Direct stock investing even through the best trading platforms in India could be risky. So, you have a safer alternative of investing in mutual funds wherein you can invest through a one-time payment (lump sum) or at regular intervals called a Systematic Investment Plan (SIP). For those who do not happen to know the difference, we have a detailed display of information given below. 

SIP vs. Lumpsum: Pros & Cons Discussed

You can start investing with a small amount or a higher one, as per your choice. Such investment could range anywhere from a few thousand to a few lakh rupees and above. Individuals take up such investments with a higher disposal amount with greater risk tolerance. Through these investment methods, potential gains and gaining wealth is feasible. 

And, we will be focussing on two popular ways of putting your money in mutual funds, SIP vs. lumpsum.

SIP or Systematic Investment Plan

A systematic investment plan is a common way to invest in mutual funds. If you take a one lakh rupee investment and divide that over ten months, then every month, you would be investing 10,000 per month for ten installments. In recent times, it has gained considerable popularity. In such schemes, the amount that has to be in installments gets deducted automatically from the investor’s bank account. 

SIP Investment: Pros

  1. You can schedule weekly, monthly, or quarterly SIP investments. Thus, you have a disciplined investment scheme that gives you some savings for each period. 
  2. There are no hassles in investing through SIPs as the money Is deducted directly from your bank account at a specified date. 
  3. This type of investment is quite flexible when you are looking to withdraw from further investments made in mutual funds. Depending upon your interval financial payouts, the investment made can be transferred to another mutual fund depending upon your income. 
  4. You can start investing through SIPs from as little as 500 rupees every month. 

SIP Investment: Cons

  1. If you are someone that has an irregular flow of income, then refrain from investing at all. Try saving money first than investing in mutual funds. 
  2. No funds in your bank account, you might be liable for some penalties, or you might get kicked out from a SIP investment making format entirely. 
  3. Despite the market going down or up, taking full-fledged advantage of the upswing in the market is not an option.

Lumpsum Investment: Pros

  1. Through this plan, investing a more considerable sum of money is possible. You do not have to worry about any additional investments in the coming future. 
  2. If you are a long-term investor and don’t want any significant gains in the short term, this type of investment is the best. 
  3. It’s quite relaxing when you know that you don’t have to think about any other investment endeavors, and you have made a sensible lumpsum investment.  

Lumpsum Investment: Cons

  1. This type of investment is not feasible for people who have an irregular income. It is more suited for individuals who have a high disposable amount in their bank accounts. 
  2. There is a greater risk at hand as any earnings could fluctuate and prove to be a loss overnight. It is more like investing blindly with the trends happening in the market. 
  3. Lumpsum investments take a considerable amount of time in showcasing potential returns and profitability. If you are in it for the short term, then look elsewhere.  

What to think Before Investing? SIP or Lumpsum

1.Timing

You must analyze the market and the state at which it’s functioning. If it looks feasible, then invest in it; if not, refrain from doing so. Also, check out which type of investment will give you greater returns. 

2.Amount

If you are in the investment making game for the long run, then a lump sum would be a perfect fit. If not, go for SIPs as they are more flexible, and it does not cost much in making investments at regular intervals. 

3.Online Platform

A fast and convenient investment platform is an investor’s priority. Whether, its mutual fund or stock trading, look for easy to use investment apps for beginners.

Conclusion

There is no bottom line as to which investment type is better. It’s every investor’s right to see their financial stability, market trends, investment goals, risk association, etc., and then take the correct decisions. With that said, it’s a better move to invest in either way than not to make any investment at all.