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Instead of SIP, is is okay investing same amount every month in lumpsum by watching the NAV?

I want to do regular investments by investing Rs 5000 per month - but without doing any SIP. I want to manually invest every month by looking at the NAV of the funds. Is it the right way of investing?

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3 Approved Answers

Kavita Soni

The two options that you are talking about seem similar; however there are key differences between the two:

  1. SIPs automatically invest your money in the next month whereas in lump sum, you need to complete the investment every month
  2. SIPs provide you cost averaging for your funds and hence you get weighted average returns over a period of time while the lump sum investment returns vary with market conditions
  3. SIPs do not involve timing the market while lump sum does

While these are the key differences, I would suggest you to understand these with the help of examples which will give you more insights on the benefits and drawbacks of two investment options.

In essence, if you have enough knowledge about the market and related fluctuation adjustments, you may consider investing using lump sum option keeping other factors in mind.

Ankit

Investment of the same amount can be done every month in lumpsum instead of investing via SIP.

SIP is preferred by most investors because it makes the whole process on investing much more convenient. It is difficult for the investors to regularly track the NAV of the fund and accordingly invest, but if an investor feels that he can comfortably track the NAV of each and every mutual fund wherein he intends to invest lumpsum amount every month, then he can surely go ahead.

In case of SIP, the amount to be invested and the date of SIP is fixed by the investor and the amount will get deducted from the investor’s bank account on that particular date. The NAV on that particular date will be considered for investment.

If the investment is made on a lumpsum basis every month, then the date of investing will not be the same since the investor will invest on the day he feels the NAV is less. Also the amount of investment every month can be changed as per investor’s convenience.

Ritika

It seems to be a valid option to watch the market's NAV and then invest accordingly, but it is not practical. There are a lot of benefits when one invests through SIP. The most common among them is averaging of the returns that you will get through the period of investment. Moreover, there is an aspect of volatility in the market, that is one thinks there is a correction about to happen which means that a particular stock's price may go down and hence may wait for sometime later to invest in the fund. This procrastination may create a doubt in one's mind, which can also lead to a loss of opportunity cost.

For example, looking at the current market trends of Realty sector, its stock price is not too high but it might rise in the near future or fall based on the reforms brought and performance in this sector. So there's a possibility of corrections because of which you need to be constantly aware of market trends and best decision-making skills.

While investing through SIP in mutual funds, there's the guidance of fund manager and by choosing the most appropriate one you can be hassle-free. Since the decisions made by them are based on a lot of research on past performance and future trends and hence despite the volatility of the market the returns are averaged out.

Considering all these factors choose your decision.

Hope it answers your question.

Happy investing!

Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.
Past performance is not indicative of future returns. Please consider your specific investment requirements, risk tolerance, investment goal, time frame, risk and reward balance and the cost associated with the investment before choosing a fund, or designing a portfolio that suits your needs.
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