What is Better for ELSS Investment: SIP VS Lumpsum
Choosing how to invest your money is a common predicament or confusion for many Mutual Fund investors. Mutual Funds also offer the option to invest the amount in one go or place a specified number at regular intervals. The first choice is referred to as a "Lumpsum" investment, and the second is referred to as a "Systematic Investment Plan," or SIP.
It's crucial to make the right investment decision in order to improve your financial future. To avoid overtaxing your present, picking the appropriate investment strategy is crucial. These days, everyone wants to invest in Mutual Funds, but few people know which method to use.
Now you might be wondering, which method of investing in Mutual Funds: Lumpsum vs SIP—is more advantageous for ELSS investment?
In this blog, let's concede to this protracted argument that perplexes every investor who considers investing gradually in Mutual Funds.
Key Differences Between SIP & Lumpsum Plans
The following are the main distinctions between the Mutual Fund investment choices for Systematic Investment Plan and Lumpsum Investment plans-
|
Characteristics |
Systematic Investment Plan |
Lumpsum |
|
Meaning |
Under Systematic Investment Plans (SIPs), the investor invests a specific sum of money at regular intervals. This specific amount is directly deducted from the investor's bank account. It disregards the timing of the market |
These investments allow the investor to purchase the number of units they want in one go. This method is usually chosen to create extra wealth and liquidity. The Lumpsum method makes use of the timing of the market strategy |
|
Surveilling the Market is Required |
Investors should regularly monitor market performance as they may experience different market cycles while engaging in SIPs |
Since Lumpsum investments are generally constructed for the long term, investors do not need to keep an eye on the market |
|
Flexibility |
When compared to the Lumpsum method, SIP is thought to be more flexible because investments can be made based on the investor's financial situation |
The Lumpsum method has no room for discretion or flexibility |
|
Inculcation of Financial Regulation |
As investors develop the habit of making planned investments, this investment option can help them develop financial discipline |
Due to the one-time nature of the investment, it does not foster such discipline |
|
Reaction to Market Volatility |
SIPs do not solely depend on market turbulence |
The Lumpsum approach is very market-responsive |
|
Cash Flow |
Regular |
One-Time |
|
Continuously Growing Market |
Less recommended |
More recommended |
|
Required Risk Appetite |
Low to Moderate |
Moderate to High |
|
Time of Investment |
Quite immune to the volatility of the market |
Depends a lot on the basics of market conditions |
|
Cost of Investment |
Less due to rupee-cost averaging |
High as this is a one-time investment |
|
Flexibility of Investment |
High |
Low |
|
Investment Horizon |
Ideal for the short term |
Ideal for the long term |
Choosing Between SIP & Lumpsum Investment
You should carefully consider a few factors, like your financial goal before you choose to make a one-time investment or go for a systematic investment plans. These factors include-
-
Risk Appetite
The primary difference between Lumpsum investment and SIPs are their varying degree of risk. SIPs come with better capital protection because you divest only a portion of your total corpus into the plan.
For example, if you invest Rs. 1,20,000 in a financial year, you only have to pay Rs. 10,000 every month in SIP. It spreads the entire investment and reduces the risk involved. Borrowers with a higher risk appetite can opt for a one-time investment, as it divests the total amount into the market all in one go. It also promises considerably better returns than other policies.
-
Returns
In both cases, the returns from these funds depend on the present market conditions. SIPs usually perform better in unfavourable markets, whereas Lumpsum investments in ELSS draw higher returns when the market is in a steady condition.
-
Lock-In Period
SIP and Lumpsum investments come with different lock-in periods; SIPs usually offer a minimum 3-year lock-in that matures sequentially, whereas Lumpsum investments are unlocked after 3 years at one go.
For example, your investment in ELSS using a Lumpsum deposit will mature as a whole after 3 years, whereas SIP bonds will start maturing one by one (depending on the months of investment) after the 3-year threshold is complete.
Conclusion
In conclusion, Lumpsum or SIP Mutual Fund investing each has its own advantage and is suitable for various investors at various times.
One must, however, be aware of the distinction between SIP and Lumpsum. Therefore, it is always advised to start investing early in order to benefit in the long run from the power of compounding. To earn returns on your investment, it is advised to choose an investment option based on your financial objectives, thus, now it is your call to make a choice.