Once you have chosen the best mutual fund to invest, SIP & Lumpsum are the two ways to grow your investments. An SIP is considered to be a good option for investment purposes. It is convenient, flexible and inculcates a habit of investing. In an SIP, a fixed sum of money will be deducted from your bank account and will be invested in the fund of your choice. Whereas in Lumpsum, you will need to time the markets. You will need to have a sound knowledge of the markets and be smart enough to make a call on when to invest to realize better gains.
Advantages of SIP & Lumpsum investment:
SIP – When you initiate an SIP, a fixed sum of money gets deducted periodically. So when the market is down, you get more units and vice-versa. This helps in cost averaging. You don’t have to time the markets at all. It’s perfect for people who have just started to invest or completely new to investing.
Lumpsum – If you wish you invest in lumpsum, you will need to be very good in timing the markets. If the markets are low, your investment can give you more units. You will need to just make a one-time investment unlike SIP where you periodically make investments.
Drawbacks of SIP & Lumpsum investment:
SIP – Starting an SIP is like opening an umbrella, even if it’s raining or not. Which means even when the markets are high you are still making an investment resulting in accumulation of fewer units as compared to when investing in low market.
Lumpsum – You will need to have a very good knowledge about the markets to make right decision to invest in lumpsum. If you invest and the markets go down, you will end up losing your wealth. Hence, a good knowledge about the markets and a foresight is needed when you choose to invest via lumpsum.
Regardless of which investing mode you chose; it is the selection of best mutual fund for SIP or lumpsum that play a crucial role. for long term risk adjusted returns. After selection of best mutual fund to invest in for a long term, you can initiate an SIP or make an lumpsum investment.
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