What is the difference between a SIP and lumpsum Investments?

There are two primary ways of investing in a mutual fund:

• Lumpsum (One Time Investment): This is a one-time investment made by an investor when he is looking to invest a certain amount of money at once. Lumpsum investments are best suited for seasoned investors who prefer to invest a chunk of money in one go during market downturns rather than investing at regular intervals via a SIP. This investment route is usually taken to create extra wealth and liquidity. Lumpsum investments are generally made for longer terms which improve the chances of earning higher capital gains.

• Benefits of Lumpsum:

  • Ideal for long-term investment

  • Easy one-time payment

  • Capital gain over time

• SIP (Systematic Investment Plan): This is a recurring investment made by an investor in the same scheme at regular intervals -- weekly/monthly/quarterly/semi-annually or annual basis. The installment amount could be as little as Rs. 500 a month and is similar to that of a recurring deposit. The (SIP) investment route facilitates investors to invest a fixed amount in a disciplined and time-bound manner without having to worry about market volatility and timing of the market. Thus benefiting the investor in the long-term due to average costing and power of compounding.

• Benefits of SIP:

  • Hassle-free

  • Flexible

  • Mitigation of risk

  • Time-bound investments