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Investors are often confused between several investment decisions that comes with beginning their financial journey. Where should they invest? How much should they invest? For how long should they invest? And the list goes on. One such investment decision is deciding between SIP and lumpsum mode of investment. This is a slightly overlooked aspect. However, one must pay heed as it is equally important. This article aims to draw parallel between the two mode of investments and help choose the right mode of investment for your portfolio.

What is SIP?

SIP, or Systematic Investment Plan is a financial tool to invest in mutual funds. It is not an investment vehicle in itself. Under SIP investment, an investor allocates predetermined sum of money towards their desired mutual fund schemes on a periodic basis for a given period of time. SIP investment offers investors the liberty and flexibility to choose their investment amount, periodicity, time horizon, etc. There is no upper limit to invest in mutual funds via SIP. Also, you can invest as low as Rs 100 in mutual funds via SIP mode of investment.

What is lumpsum?

Under lumpsum investment, instead of breaking their investments, an investor invests their entire investment amount in one go. This mode of investment is often preferred by those investors who have a substantial amount of funds lying around. This surplus cash could be achieved either through sale of property, or by winning a lottery, or money received from inheritance, or funds received on retirement, or any other way.

SIP vs lumpsum

The following table summarises the differences between SIP and lumpsum mode of investing:

Factors SIP Lumpsum
Cashflow Regular Single
Risk appetite Low to moderate Moderate to high
Time of investment Subject to an investor’s financial objectives and usually immune to market sentiments and conditions Subject to an investor’s financial objectives and highly dependent on the market sentiment and volatility
If an investor has a surplus amount of funds Not recommended Preferred mode of investment
Investment cost Less (owning to the concept of rupee cost averaging) High
Flexibility of investment High Low

Which investment method to choose to invest in mutual funds?

Whether you choose SIP or lumpsum for investing in mutual funds entirely depends on your investment portfolio. There are certain factors that can sway your decision, such as whether or not you have a regular salary, if you have surplus funds lying around, your risk profile, your financial goals, etc.

Both SIP and lumpsum mode of investment has it own set of advantages and disadvantages. While SIP investment is more convenient and easy on the pockets, lumpsum investments are known to offer significant returns when invested at the right time. So analyse your financial position, and accordingly choose the right investment mode for your portfolio. There is no right answer in which mode provides better returns. You can also use a mutual fund return calculator to understand the future value of your mutual fund investments. Happy investing!