Investing in mutual funds is an excellent way to diversify your portfolio since you may acquire exposure to various assets based on the mutual fund type. Mutual funds come in multiple shapes and sizes, including debt funds that invest mainly in stocks and bonds, equity funds that invest primarily in equities, and balanced funds that combine the two.
You can invest in mutual funds either as a lumpsum payment or as a systematic investment plan (SIP). This article will explain the two types of financing approaches and the benefits and drawbacks of each so that future investors may make better, more educated selections.
What is Timed Lumpsum Investment?
A lump sum investment is a large amount of money placed in a mutual fund.
Consider the case of a person who has finally built up a sizable sum of money after retiring or has gotten money from their PF fund and desires to put it in mutual funds. One method they may do is to invest the entire sum in a single mutual fund at once. This is referred to as a lump sum investment.
What are SIPs?
Through a SIP, you can invest in mutual funds in a phased way (Systematic Investment Plan). SIPs allow you to invest a little sum regularly, such as Rs 10,000 per month over twelve months. A SIP is an excellent option if you don’t have much money to invest. SIPs have lately gained popularity since they allow for regular investments.
SIP vs Lumpsum
Investors can profit from potential long-term wealth building through systematic investment plans (SIPs) and lumpsum investments. The main distinction between the two is the frequency with which they are invested. SIPs, in reality, allow investors to invest in a mutual fund scheme regularly, such as daily, weekly, quarterly, half-yearly, and so on. SIPs may be started with as little as Rs 500 per month, whereas lumpsum investments need a large outlay of capital.
Advantages of SIPs over Lumpsum investments
Rupee Cost Averaging
SIP allows you to invest in a variety of market cycles. You will acquire more units when the market falls. When the stock markets rise, you will also receive fewer units. It will assist in lowering the cost per unit of acquiring the units. Rupee cost averaging is the term for this occurrence.
Make it a habit to invest
Because SIPs force you to spend a predetermined amount of money regularly, you will become financially disciplined.
Watch the market constantly
Many investors, particularly new ones, are unsure when to come into the market. When you invest a large amount of money in one go, you risk losing a big chunk of your money if the market falls. During a market high, you stand to gain a lot of money. Your money is spread out over time with a SIP, and only a portion of your investment is exposed to market volatility.
Best for budding investors
If you’ve recently started your professional job, a SIP is a great way to get your feet wet in investing. In this manner, you may have exposure to stocks for as little as Rs 500 every installment. Later, depending on your investment requirements and risk level, you might move into riskier stock programs.
Final Thoughts
The decision to invest in mutual funds via SIP (Systematic Investment Plan) or lump sum is entirely up to the individual and their risk tolerance. Before depositing their hard-earned money anyplace, an investor should adequately investigate the mutual fund, its return record, the most advantageous mode of payment, and so on.
