SIP or Lump Sum

SIP or Lump Sum

05 Sep 2019

There is a common dilemma which common investors find themselves confronted with – Should I deploy my investible surplus on a lump sum basis or through a systematic periodical route, say on a monthly basis?

Although every method of investing has its own merits, investors must undertake proper due diligence, taking into account several factors such as current age, risk profile, type of lifestyle or financial goals, number of years left for achievement of individual goals, etc.

Both the strategies - SIP and Lump Sum - work in the long run. Investors need to figure out what works best for them taking into account all the factors mentioned above.

Let us consider both these ways of investing in greater detail below:-

Lump Sum: – The estimated long-term growth continues to be greater in India as compared to several of the developed economies of the world. In such a scenario, the returns from the equity market in the long term are likely to follow a similar trajectory as a nation’s economic growth. Considering your SIP investments continued uninterrupted through market peaks, returns from a lump sum investment initiated a decade ago will tend to look better than SIP returns. Here we would like to advise three important points to be considered before going for such lump sum investments -

  • If you are buying lump-sum, then stay invested for the long term, for example - Had you bought Indian equity mutual funds in January 2008, you have probably had to wait for six or seven years before getting positive returns. Even if you had bought in September 2008, when markets had already corrected substantially, you would have still seen your equity funds deep in the red because the markets eventually bottomed out only in March 2009.
  • Calculate the time frame when you need this lump sum money back, for example - If your lump-sum money is going to be needed at the end of the year to pay the margins for your home loan, then you are better off putting the money either in a debt fund or in a liquid fund. if you invest lump-sum in equity funds, do not expect outperformance within one year. At least give it three years to show outperformance.
  • Timing the market is not always possible - the economy is a complex system that contains many factors, even at times of significant market optimism or pessimism, it remains difficult, we cannot easily predict maximum or minimum of future prices. A so-called bubble can last for many years before prices collapse. Likewise, a crash can persist for extended periods.

SIP: – A Systematic Investment Plan (SIP) is a facility that is available with most Mutual Fund schemes. SIP allows you to regularly invest in a particular scheme by fixing a periodic contribution. SIP has a place in everyone’s investment strategy and is more about a disciplined, systematic and consistent approach towards your investments.

Manage your monthly fund flows better and plan your investments by investing through SIP’s. Let the automated system, which is typical of a SIP, do the work once you initiate an SIP for as many months or years you choose. Your monthly spends and other investments can then be worked around this regular investment. The SIP route of investing assists you to cut through the market volatility by continuing your investments, irrespective of whether the market goes up or down, thus benefitting from both.

Some key aspects which support SIP investment are as follows-

  • Rupee Cost Averaging is one of the important factors of SIP, which helps investor’s money to be spread over time during both rising and falling markets.
  • A SIP enables you to regularly increase your investment amount by a fixed amount and get the benefit of compounding as you earn returns on the returns generated by your investment.
  • A SIP investment is less stressful than a lump sum investment and may help you stay invested.

SIP is always preferred instead of lump sum investment but still many people choose to go in for lump sum investments due to various reasons or factors.

To conclude, each of the above two methods of investing have their own characteristic features and peculiarities. Therefore, invest wisely using the option which works out the best for you and take calculated and well-informed decisions to get optimum returns from your investments.

Founded in 2005 by new–age entrepreneur Abhishek Bansal, the Abans Group has evolved into a globally diversified conglomerate, providing expertise in Broking Services, Non-Banking Financial Dealings, Financial Services, Agri-Commodity Services, Warehousing, Realty & Infrastructure, Gold Dore Refinery & Manufacturing, Trading in Metal Products, Pharmaceuticals, Software Development & Wealth Management. The Group is a comprehensive financial and non-financial services and solutions provider, aiming to provide end-to-end solutions to its clients.