What is Better for ELSS Investment: SIP VS Lumpsum

19 October 2023
4 min read
What is Better for ELSS Investment: SIP VS Lumpsum
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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.

Disclaimer

The stocks mentioned in this article are not recommendations. Please conduct your own research and due diligence before investing. Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. Groww Invest Tech Pvt. Ltd. (Formerly known as Nextbillion Technology Pvt. Ltd) Ltd. do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.
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