SIP v/s Lump Sum
Is SIP a better investment option or making lump sum investment a better one? The importance of SIP has started increasing since Mutual Funds have entered Indian territory but some investors prefer lump sum investment. Here are few differences between SIP and Lump sum investment.
The full form of SIP is Systematic Investment Plan which means it is a method of investing that takes a certain amount of your cash and invests it periodically into mutual funds. A lump sum investment is of the entire amount at one go.
Lump sum investment is done to make investment for as long as for a period of 12 months and above. Most of the times lump sum investment have very low chances of negative returns. SIP is done when you don’t have excess cash and wont to enjoy compounding power. As it is rightly said that every drop of water is important to make an ocean. Making investment via SIP may not seem attractive at first sight but it enables investors to get into the habit of savings.
One can start SIP with the amount as low as Rs.100/- per month whereas for lump sum investment one need cash in bulk. While making investment it is very important to make a note that tax saving should always be incidental to your investment plan which in turn should be guided by your financial goals. Equity Linked Saving Schemes (ELSS) are one of the most popular investment that provide tax saving and capital appreciation.
When making lump sum investment it is very important to time the market. The best time for a lump sum investment in a mutual fund is when the market or the NAV is close to its year’s low and when there’s scope for the fund to start
appreciating again soon. If you are planning for any long term goals that are expected to come only after 5-6 years then this is the right time to start investing in SIP of large cap diversified equity funds.
