SIP or lump sum? Has this question been bothering you? No more. If you have a regular income to save some money, opt for SIP. If you have a large sum of money, go for lump sum investment. Well, this might seem a simple answer to SIP or lump sum. Knowing it's nature will help you decide what suits you better.
In SIPs, the investor regularly invests a small amount of money over a period of time. Determining your financial goals and your capacity to invest you can start SIP. It has the facility to invest monthly, quarterly or half yearly. It can be started with an investment as low as Rs. 500. Hence, it is usually recommended for salaried individuals or investors with low income.
SIP is considered hassle free investment. It is very easy to set up and monitor SIPs. After the initial formalities, the amount will be deducted directly from the bank on the specified date. For instance, you may want to invest Rs 5000 on the 5th of every month into perticular fund, amount will be automatically debited from your account. This instills a certain level of investment discipline in investor.
Another major benefit of SIP is you are not affected by market fluctuations. As your investment happen across time periods, you get benefit of low levels and mitigate the risk of reducing your capital.
The other mode of investing is to invest a lump sum amount when you have extra lying idle. As the name suggest Lump sum plans or one-time investing require investors to invest in the fund at one go. This method of investing is usually preferred by aggressive/experienced investors and high net worth individuals.
Investor might seem lump sum attractive due to high returns in short period. However, it is highly affected by market fluctuations. In today's globalized financial markets where news and crises in one part reflect across the globe instantly, investor should posses the loss bearing capacity. Most importantly, investor has to be mentally prepared to face the lows because many end up booking losses.
The choice of SIP or lump sum really depends on the investor’s investment goals and risk appetite. There is no right or wrong way. However, an ideal strategy would be the combination of SIP and lump sum. But, again, this should be done only if the investor has sound knowledge of the market and follows a strict investment discipline.