Having savings to back up purchase decisions and creating a secure tomorrow is anyone’s dream. But how one gets there and what are the ways to develop this security fund are important to know. Systematic investment plans are a great way to start investing your money parked in the savings account. The SIP, in recent times, has become a favorite to save and grow money. And thanks to the returns one year over five years and three years of investment, it is becoming a safe way to invest.
Lumpsum savings and investments are other popular choices considering it allows people to save up and invest huge amounts of money at once. While there are ample options to invest in, the question is – which one is better, SIP or a lump sum investment?
This blog aims at answering that question. While it is a matter of choice, knowing how to save money is something that everyone should know!
Which of the two is better: An SIP or Lumpsum Investment
While there are a plethora of best SIP investment plans to choose from, lumpsum investments are equally regarded and popular. While a SIP involves investing small amounts of money over a regular period, lumpsum investment is when a person only invests once when they have a certain amount in hand.
SIPs can be started for as low as Rs 500, and they can be timed monthly, quarterly, or annually. A lump sum is all about collecting money and investing it all at once.
It is always advisable to invest through SIP, though, as it helps build financial discipline and build up security saving over time.
In addition to this, you can always boost your savings through a lumpsum deposit. For instance, in many Indian households, people go for a monthly reoccurring deposit and opt for a fixed deposit later. There are other ways to grow your savings, too, and this is where Multipl can help!
When is SIP suitable?
A systematic investment plan (SIP) is an available option for mutual fund investors. Investors, through this, can invest a fixed sum on a regular basis. Also, anyone can start their SIP investment and can update their investment amount as they wish.
You can conduct your own market research to find the best SIP investment plans that can align with your future goals.
Here’s what makes SIP strike such a chord with the masses.
Rupee cost averaging
Through SIP, market volatility experience less impact as the investments are made in small amounts over a long period. As a result, they do not undergo any drastic changes due to market fluctuations.
Brings discipline into investing
Since the SIP amount is deducted automatically from your bank account over the opted period and directed towards the mutual fund scheme, it brings out the much-required discipline of investing. Moreover, the practice also positively impacts the investor since regular investment practices build a positive attitude towards saving and investing.
Safeguards against the problem of market timing
SIP lowers the average cost of investing, as when the market is down, you end up with more units with your investment. It also results in higher returns making it the least affected investment option by the market.
You can withdraw any amount and change the amount invested at any time. Individuals can choose an amount as small as ₹ 500 to invest in mutual funds and later increase it as convenient.
When Should I Choose to Invest Through a SIP?
Any person with a regular income can invest in a SIP.
But why a Systematic Investment Plan?
An investment via SIP reduces the stress of making an investment that is unaffected by inflation rates. For a person investing in mutual equity funds and looking to invest for the long-term, SIP is the best recommendation. Also, SIP investing works well in a bear market.
The biggest question is when is the right time to choose a SIP investment?
Anytime is the best time to start investing. Whether the market is at an all-time high or at the lowest point, this doesn’t affect the value of money invested. This is mostly due to the assumption that investors invest for a longer period of either three years or five years. It is always recommended to invest through SIP for the long term as investing throughout an entire business cycle is beneficial for the investors, and they can reap higher benefits. Moreover, the longer the investor stays, the more they enjoy the benefits of the power of compounding.
When is Lumpsum Suitable?
Lump-sum investing in a mutual fund suits investors who want to invest in short-term debt mutual funds. There is no reason to invest in debt mutual funds through a SIP investment plan. Rather lump sums are preferred as the recommended time to invest in mutual funds is less than three years.
But this does not translate to the fact that people cannot invest in mutual funds through a lump sum; any amount of windfall can be invested in mutual funds. Moreover, even salaried individuals can invest via lump sum when they get bonuses.
Safeguarding Your Investment
A lump-sum investing approach in mutual funds tends to do well in a bullish market, but what if the assumptions are wrong and the market falls, in order to get out of it, there is an option.
You can always opt for STP (Systematic Transfer Plan). An STP is a regular transfer of money from another mutual fund instead of your own account. This means you can invest the money in a debit account instead of a standard savings account to accrue more interest.
Therefore, the main difference between lump sum and SIP is cost averaging. Lump-sum investment moves as the market moves. SIP investment averages the cost of units bought over time. One can choose SIP or lump sum for investment in mutual funds based on their investment plans.
Invest Your Money Wisely With Multipl
It can never be a SIP v/s Lumpsum. Lumpsum or SIP in mutual fund investing have its own benefits and work for different investors. However, one has to understand the difference between SIP and lump sum. While it is always recommended to start investments early to enjoy the benefits of the power of compounding, in the long run, knowing which form of investment works the best for you is important.
However, it is advisable to pick an investment option based on your financial goals, and voila, you are earning returns on your investment!
Here are other ways to grow your savings, too, and this is where Multipl can help! So start your journey of making efficient investments today with the best SIP investment plans available to enjoy tax benefits and a more financially stable future!
Download the app now and get started!
Also read-7 Personal Finance Saving Tips for Beginners: Know How to Save and Spend Wisely
Which investment is better one time or SIP?
No doubt, a One-time investment yield better returns as compared to a long term SIP investment; in the case of a one-time investment, the money invested would complete the full tenor and thus resulting in a better return over SIP; however, in the case of long term SIP investment, a person can withdraw money before the maturity.
Can a person invest in both lump sum and SIP?
Yes, you can invest in both lump sum and SIP. Just make sure to start with a monthly SIP investment you are comfortable with and let the money stay in your account till its SIP tenure in the chosen equity funds.