Lumpsum OR SIP in Mutual Funds (2023?

Should you do a SIP or invest lumpsum?

The war between SIP and lumpsum mode of investment is never-ending. And there are strong believers on both sides. Investors often read up tons of content on the internet to and then speculate among these two modes of investment and decide which is better than the other, i.e. SIP or Lumpsum.

To be honest, I don’t like these questions comparing the two.


Because as usual, there is no one right answer here.

Both these modes of investment have their own sets of pros and cons. And whether you decide to invest in lumpsum or SIP must entirely depend on your requirements and portfolio’s needs.

What is SIP?

You already know it. But as a reminder, SIP or Systematic Investment Plan is a systematic and planned way to invest in mutual funds. Under this mode of investment, a small sum of money can be invested in specific mutual fund schemes at regular and periodic intervals for a pre-determined duration. For example – doing a SIP of Rs 10,000 per month for 10 years, or doing an SIP of Rs 25,000 per month for 20 years.

What is lumpsum investing?

When you invest in lumpsum, the entire investment amount is invested in one go. Usually, a significant sum of money is invested in mutual funds through a lumpsum mode of investment.

But let’s not jump the gun.

Even before you begin the debate of lump sum vs SIP, there is another important factor – you need to actually have a big enough amount that can be called lumpsum! Isn’t it?

If one doesn’t even have this ‘lump sum’ then this question of SIP or lump sum in itself is irrelevant.

And please don’t think that just because a large lump sum amount is available then you should blindly go ahead and invest it in one go.

Let’s move on.

When is the SIP mode of investment more suitable for investors?

As SIPs are invested on a regular basis, they are ideal if you have a regular flow of income. These modes of investments are usually preferred by investors with a low-risk appetite who do not wish to risk their capital against market timings, as seen in lumpsum investment. There are several benefits of SIP mode of investment like rupee cost averaging, disciplined and systematic investing, light on the pocket of investors, higher flexibility to investors, and lastly, no need to time the markets. There is no ideal time to invest in mutual funds via SIP thanks to the investment concept of rupee cost averaging. A SIP mode of investment usually captures both the high and the low phase of the market. As a result, it does not matter if you have captured the markets at its low in the long run. Thus, you can invest in mutual funds via SIP whenever you are ready to earn returns on your investments.

When is lumpsum mode of investment more suitable for investors?

A lumpsum mode of investment works best during rising markets. If you are able to capture the markets at their lowest, the potential to earn significant returns would be higher when the markets grow. The lumpsum mode of investment is ideal for those investors who are ready to take on that additional risk to be compensated by higher returns. However, it is crucial to note that if you wish to invest in mutual funds via lumpsum mode of investment, it’s important to closely track the markets as market timing plays a huge role in determining the returns earned on your mutual fund investments.

So in general there may be times when SIP gives better returns while in other cases, lumpsum will give better returns.

What should you choose? SIP or lumpsum?

Lumpsum investors potentially expose their portfolios to the vagaries of the market. There is always the risk of being completely wrong and mistiming your entry with lumpsum. And that is the problem. To be fair, one can also get the timing right and if willing to spend sleepless nights in the short term, can go on to make much higher returns than usual in the medium to longer term. But that’s how the dynamics of lumpsum investments are. SIPs, on the other hand, reduce the risk of being completely wrong as the investments are spread out. So asking whether is this the right time to invest in SIP is immaterial as SIP spreads out your investments. Ofcourse your returns will depend on how the markets play out during the spreading-out period. But that is how it is.

Whether you decide to go forward with SIP or lumpsum mode of investment entirely depends on your investment portfolio. You must analyze if you have a regular flow of income or irregular inflows. Also, one’s risk appetite, investment horizon, and financial goals also play a huge role in determining the right mode of investment.

There are numerous SIP success stories that show how SIP creates wealth in the long run and can help When you want to invest for goals like retirement planning, children’s future planning, etc., or even Full Financial Planning.

So that was about SIP Vs Lump sum and which mode is better in mutual fund investing (2023).

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