Difference between SIP and Lumpsum Investments in Mutual Funds

October 31, 2022 / 02:13 PM IST

Investors today, have the choice of various methods of investing in mutual funds. Two of these are the SIP or systematic investment plan and lump sum investment (which can be done manually by an investor). When one invests through SIP, a fixed sum of money is invested at regular intervals (weekly. monthly, quarterly. annually etc.). in the mutual fund scheme of their choice, starting with a sum as low as1N R 500 per month. Whereas when an investor chooses to invest manually, the amount invested would need to be a minimum of 1NR 5.000. while the date of investment can be decided as per the investor’s convenience.

The following pointers may help you further understand the two modes of investments:

1. When one invests via SIR a fixed sum of money gets debited from their account at regular intervals. Here investors can decide whether they wish to invest on a weekly. monthly. semi-annually, yearly basis etc. Once the date is decided, the investments take place in a regular manner thereby allowing investors to instill financial discipline.

2. Investments through SIP offer the benefit of rupee cost averaging as they continue to invest through the upward and downward trends of the markets and can thus average out the investment cost.

3. When it comes to lump sum investments, market conditions might sway investor sentiments and dent their conviction of investing on the day they had planned to invest. This possible delay in investment could further go on to impact the ability of investors to invest consistently and diligently.

4. In case of lump sum investment investors may miss out on investing money/carrying out their transaction every month, as it is done manually. However, in case of SIP. a fixed sum is automatically debited from one’s bank account on the pre-decided date.

5. SIP investments offer the chance to novice investors. who may not be as well versed with the financial markets. to begin their investment journey in a streamlined manner. In terms of lump sum. an investor may be required to have certain prior knowledge in order to track their fund’s NAV and invest accordingly.While both the investment methods have their own benefits, it would be prudent to choose one basis your financial goals, risk appetite as well as time horizon.Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

 Moneycontrol journalists were not involved in the creation of the article.

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