Image Source : PIXABAY Lumpsum investment lets you invest according to the market conditions.
SIP vs lumpsum: Mutual funds are one of the most popular choices among investors these days. Systematic Investment Plans (SIPs) and lumpsum investments are two very popular options for investors. With several options available, people usually get confused when it comes to selecting the right one.
As the name suggests, a lumpsum amount is required in lumpsum investment. On the other hand, you invest a fixed amount every month in SIP. But which method is better for you when it comes to getting a good return? Let’s understand –
Systematic Investment Plans or SIP
– SIP is a very popular way of investing in mutual funds. The biggest advantage of SIP is that you can invest a fixed amount every month at your convenience. One can start the SIP with as low as Rs 500.
– Another advantage of SIP is that it gives you flexibility. This means an investor can increase or decrease the investment amount over time. Moreover, you can stop it in between if needed and you can withdraw money anytime.
– The advantage of SIP is that you invest in it amidst all the ups and downs of the market. Due to this, your return is averaged out.
– Financial experts believe that if you invest money in SIP for a long time, keep increasing the investment over time and also remain disciplined in terms of investment, you can create a huge fund.
– However, the disadvantage of this type of investment is that one cannot take advantage of any major fall in the market. Apart from this, if you forget any installment of SIP, you may have to pay a penalty. However, this is very unlikely nowadays as investors get an option of auto debit.
Lumpsum
The biggest advantage of lumpsum investment is that you can invest according to the market conditions and take advantage of its fluctuations. Also, it requires less discipline as you need to invest continuously.
However financial experts believe that you should invest in lumpsum only when you have a large capital and a good understanding of the market. This is because even a small mistake can rip off all your profit. On the other hand, SIP is good for new investors who don’t want to take a lot of risk.
