What factors should I consider while deciding between SIP and lumpsum?

Making smart investments can help you achieve your long-term financial goals with ease. Nowadays, mutual fund investments have gained immense popularity owing to their relatively high returns. You can invest in mutual funds through a systematic investment plan (SIP) or by investing a lumpsum amount. However, many investors are often confused as to whether to make an SIP investment or a one-time investment.

  • Choosing between SIPs and lumpsum depends on your familiarity with mutual funds, the type of fund you wish to invest in and your financial goal. If you want to make investments regularly to accumulate sufficient capital for a financial goal, you should consider investing in a suitable equity scheme through SIPs.
  • You can consider diverting a portion of your monthly income towards an SIP investment. This could help you grow your money significantly in the long run. The returns earned can be used to fund your child’s higher education, plan your retirement, etc. You can consider seeking the help of a financial advisor to make a well-informed decision.
  • If you have additional funds such as bonus, proceeds from property sale, retirement corpus, etc., you could make a lumpsum investment in a debt or liquid fund.
  • SIP investments are advisable for investing in equity mutual funds while lumpsums are better suited for debt funds. If you are starting with your investment journey in mutual funds, SIPs would be the ideal choice for you. SIPs are also better suited for a widely fluctuating market phase.
  • SIP investments require sufficiently long-time horizons to prove beneficial.

Be it SIPs or lumpsum investment, mutual funds investment could make you earn profitable returns in the long run. Some of the major benefits of investing in mutual funds are mentioned below:

Benefits of mutual fund investments

Low-cost investment

With the help of SIPs, you can invest a small amount at regular intervals. Therefore, SIPs make it convenient for beginners to invest in equity mutual funds. You can start with as low as Rs. 100 per month, depending upon the mutual fund scheme you choose.

Capital appreciation

There are mutual funds that could provide inflation-beating returns, thereby allowing you to accumulate a good amount of wealth over a period of time. The long-term equity returns can help you meet your financial goals such as funding your child’s higher education or managing their wedding expenses, saving for your retirement, etc.

Easy to liquidate

Receiving the corpus back to your bank account is easy while investing through equity mutual funds. Whenever you require urgent money, you can redeem all or part of your investment.

Portfolio diversification

When you make an investment in mutual funds, it is diversified across different companies and sectors. This reduces the risk of losses in the future. Thus, if some stocks underperform at the exchange, the outperforming ones can make up for the losses. Therefore, portfolio diversification helps in minimising market risk significantly.

Being aware of the various benefits of investing in mutual funds could make you meet your short term as well as long term financial goals. You could also reach out to experts to help you to plan your mutual fund investment journey.