What is Better for Investment: SIP VS Lumpsum

Benefits of SIP Investment

• Easy To Start

If you are a new investor and don’t know much about the stock market, SIPs are the best methods to begin your investing journey. There is no cap on investment amount as well. One can start with ₹100 and increase it as per the income flow. 

• Helps Build a Habit of Saving

If you are not good at saving money, start investing in SIPs because they demand regular investment. Knowing that a specific amount will automatically be deducted from your bank account, you won’t spend it elsewhere. This way, you can make a habit of saving money and simultaneously build a corpus for your future. 

• Flexible and Adjustable

SIPs are flexible and adjustable as per user needs. 

For instance, if you are regularly investing ₹1000 every month but one month, you cannot contribute the full amount for some reason. In that case, you can simply adjust the amount for that month as per your needs. 

Similarly, you can also increase the amount anytime, depending on your cash flow and income. 

• No Need to Worry About Market Timing

Many investors, especially those who are new to investing, often think they will start investing only when the market is rising. 

However, with SIP investments, you don’t need to worry about timing the market because it averages out the cost of investments. In fact, investing when the market is down can be more fruitful as you can buy more mutual fund units at lower prices and, ultimately, greater returns. 

• Diversified Investment Options

SIPs offer diversified investment options. 

With Multi SIP/ Combo SIP, one can simultaneously invest in different types of funds, such as large-cap, small-cap, mid-cap, ETFs, and debt funds. 

What is Lump Sum Investment?

In a lump sum (one-time) investment, a large amount of money is invested all at once. Unlike SIPs, where small amounts are invested regularly, it requires a huge sum of money to be invested upfront. The returns from lump sum investment depend largely on the amount and how stock markets are performing. 

For instance, ₹12,00,000 invested as a lump sum over 20 years can yield massive returns of ₹1,03,75,552 if the markets are doing well. 

Benefits of Lump Sum Investment

• One-and-Done Investment

In Lump Sum investment, you are only required to invest a large sum at once, and there’s no need for ongoing contributions. Just make one investment and let it work for you.

• Suitable for Large Surplus Funds

Got a bonus, inheritance, or lump sum savings? If yes, a lump sum investment can be the best way to make your extra money work and generate returns. Also, it can give your portfolio a strong initial boost. 

• Avoids Investment Gaps

In lump sum investing, the entire amount is invested altogether, and there are no investment gaps. Your investment will actively earn returns from day one without any delays. 

Comparison Between SIP vs Lump Sum Investment

Below are some of the key differences between SIP and lumpsum investment.

Choose SIP Investment if: 

• You don't have a large sum of money to invest upfront
• You have the patience to invest regularly for at least 5 to 10 years.
• You have a regular monthly income source, like salary.  
• You want better returns than traditional savings accounts or fixed deposits.
• You want to develop a savings habit. 
• You want to start with a small investment amount and increase it as your income grows. 
• You have long-term financial goals, like retirement planning. 

Choose Lump Sum Investment if: 

• You have a large amount of money ready to invest 
• You have the confidence to tolerate short-term market fluctuations. 
• You are comfortable with the risk of investing a large amount of money at one time. 
• You have a good understanding of the market timings.

Conclusion 

To conclude, both SIPs and lump sum investments offer unique advantages to investors with different financial situations and risk appetites. SIPs offer the benefit of disciplined, gradual investing and are well-suited for those with regular incomes. On the other hand, Lump sum investments are ideal for those with substantial capital ready to invest.

Regardless of the method you choose, what matters most is to start investing as early as possible to build wealth.