Mutual funds have turned out to be one of the best products to invest in the financial market. It brings two important plans of investment named SIP (Systematic Investment Plan) and Lump Sum Investment. This makes everyone to ask the question is it better to invest in SIP or Lump Sum in mutual funds, is SIP better than Lump Sum, etc. But, in the real sense, these are just stupid questions since both works better in mutual fund investment market. The question is which one suits you better since the investment goals and budget changes from one person to another and here comes the right answer for you.
SIP vs. Lump Sum Investment
You should know in detail about sip vs lump sum investment mutual fund to know which one is better for you. Both the investment plans are subjected to market risks. In some cases, SIP brings better returns than lump sum investment and vice versa. And in other cases, the results may seem to be somewhat similar.
As said above SIP is the systematic investment plan where the investor can invest the agreed amount of money at regular intervals; monthly or quarterly. Now, there is an option to debit the said amount automatically from the bank account of the investor. This is one of the best and easiest investment products to select for first-time investors and salaried persons and the investment can be started with an amount of Rs. 500 or less.
Benefits of SIP
The important benefits of SIP include it creates disciplined and regular investment, gives the benefits of cost of averaging, gives better liquidity than traditional options, gives flexibility in selecting the investment amount and more. SIP is quite easy when compared with other financial instruments in the market and the investor has the freedom the increase or decreases the money they have at any time.
Lump Sum Investment
From the term itself, it is clear that investor has to invest lump sum money at once in the selected financial product like mutual funds or direct equity. These investments are generally made by seasoned investors with good knowledge and experience about the market. Lump sum investment made at the right time on the right product can bring excellent returns for the investor.
Benefits of Lump Sum Investment
The important benefits of lump sum investment include giving better control over the investments, giving the benefits of the power of compounding, giving the power to make benefits from market corrections, giving better returns in a bull market and more. The effect of compounding in calculating interest results in exponential growth of money. This means, the annual interest is added to the principal amount and the total is calculated as the principal amount for the succeeding year interest calculation. Hence lump sum investment made for a good period of years brings excellent returns for the investor.
So, this is all about sip vs lump sum investment mutual fund for you. Now, it will be so easy for you to select the right plan based on your affordability, incomes structure, and personal investment goals.