SIP vs Lumpsum

Find out the difference between SIP and lumpsum Mutual Fund investments

Key Takeaways

SIP and Lumpsum are ways to invest in Mutual Fund schemes.
SIP enables you to invest smaller amounts in instalments, while Lumpsum implies a significant one-time investment.
SIP comes with the benefit of rupee cost averaging.
Lumpsum investments are ideal for rising NAVs.
You can start with SIPs and invest in lumpsum once you familiarise yourself with the market.

Mutual Fund investments are incredibly popular, primarily because they afford a wide choice of securities across asset classes, durations, and risk appetites. They also offer flexible investment options through two unique methods. You can invest a lump sum amount or choose the Systematic Investment Plan (SIP) and invest in instalments. Keep reading to know the differences between SIP and Lumpsum and which is better?

SIP Vs Lumpsum – Meaning

A Systematic Investment Plan (SIP) allows you to invest in a Mutual Fund Scheme via periodic instalments stretched out over time. These investments could be weekly, quarterly, half-yearly and so on. Conversely, a lump sum investment allows you to invest a substantial amount in a Mutual Fund scheme at once.

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SIP or Lumpsum – Comparing the Differences

The below characteristics of SIP vs lump sum can help you decipher the better investment option for you.

Investment Cost

You can start a SIP with amounts as low as INR 100. Lumpsum investments require a considerably higher minimum amount, which varies from one fund house to another.

Market Timing

For lumpsum investments to be profitable, you must time the market before investing. For SIPs, you do not need to bother with timing the market. The investments get distributed across time, and fund units are distributed based on Net Asset Value (NAV) at the end of the trading day.

Risk Appetite

Investors with low to moderate risk appetites can opt for SIPs, while lumpsum is meant for investors with relatively higher risk appetites who can brave market volatility.

Fund Unit Distribution

With lumpsum investments, the fund units are distributed per the NAV on the investment day. While investing in SIP, the unit distribution depends on your SIP date. You could get a higher number of units when the per-unit price or NAV of the fund is low and fewer units when the NAV is higher. This feature is known as Rupee Cost Averaging.

The Verdict: SIP Vs Lumpsum – Which Is Better?

Both SIP and lumpsum investments yield similar returns, and you can leverage the power of compounding on both types of Mutual Fund Investments. You simply need to reinvest your profits to enjoy this benefit. That said, lumpsum investments are akin to putting all your eggs in one basket, whereas SIP enables you to diversify your mutual fund portfolio by choosing different schemes. SIPs are ideal if you prefer to invest smaller amounts at periodic intervals. If you prefer to save a significant sum and then invest, you can consider lumpsum investments. Choose lump sum if you can have the know-how to time the market effortlessly or stick to SIP, which averages out your investment over time.

Final Note

Whether you choose SIP Vs lump sum, you can expect above-average inflation-beating gains. Remember to weigh your costs, investment horizons and risk appetites to determine which investment option works best for you. You can always start with SIP and later invest lumpsum amounts as you get more comfortable with market investments.

The time to invest is now, and you can start your first, or next SIP investment with DBS Bank. Also, open your savings account with us.

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*Disclaimer: This article is for information purposes only. We recommend you get in touch with your income tax advisor or CA for expert advice.