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SIPs or Lumpsum - Select the best Investment Strategy for you

By Aayush Upadhyay

22nd Mar 2022

4 mins read

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A juicy bonus cheque, a salary hike, and a generous gift from grandparents who unfortunately lost their battle against LUMPSUM investments. Only if we could turn back time and stop you from investing at all-time highs. Only if we could have convinced you to set up SIPs.

In this blog, let’s go over the 2 investment strategies - Systematic Investment Plans and Lump-sum investment.

SIP Investing

Systematic Investment Plan or, more commonly, an SIP, is an investment strategy that can make you a Crorepati! This tendency has a name—the 15x15x15 rule. Say you start investing ₹15,000 every month for the next 15 years in an asset delivering a 15% rate of return, and you will end up with more than a Crore Rupees in your hand. Compounding at its best, isn’t it? Longer investment durations tend to give exponential returns.

Advantages of SIP

SIPs are now a standard tool when investing in Mutual Funds, Stocks, or even Cryptocurrency and have the following benefits:

  • Building a Disciplined Investing Routine: SIPs help you build a substantial saving money and Investing habit. Disciple, hence, is an obvious byproduct.
  • No need to time the market: With SIPs, you don’t need to sit with charts of your Mutual Fund every day and wait for it to fall down and then invest your money. SIPs distribute your purchases over time, so you don’t miss out on the highs or lose the lows.
  • Cost Averaging: SIPs buy more when the prices are low and buy less when the market is at peak. This averages out your investments, and you get better returns in the long term.
  • Better Returns:  Data shows that SIPs usually have shown better performance than the Lumpsum investing model.

The macro-economic factors have less importance in this paradigm because of the cost averaging factor. The process is straightforward. One can simply choose a date that allows the capital to make the investment and set up auto payment from the bank account. Or invest the money in desired asset every month manually.

Lumpsum Investing

Lumpsum Investing is when you put a large chunk of money at once. It has a higher risk factor because you could be investing in a low or high phase, which could be a great bet or a bad bet in the long run.

Advantages of Lumpsum

Lumpsum investing is usually preferred by the risk-takers, as it has its benefits.

  • Considerable amount Invested: If you find the right opportunity, you can buy an asset at a steal.
  • Ideal for the Long term: Investment via a Lumpsum medium is suitable for a long tenure because the market, though volatile, gives you decent returns in the long run.
  • Timing: Most of the investors who invest Lump-sum amounts do time the market and support at a time of decline and if gradual growth occurs. This helps generate more returns in the long term compared to SIPs because of the Amount of money invested and the Perfect timing of the market.

When to make Lumpsum Investments?

This is not an easy question to answer since no one knows when the market will fall and rise again. For example, If you had made a Lumpsum investment in March 2020, you would have created massive returns by now because the markets fell by 20-30% and have since grown significantly. But if you had made the same investment in January 2020, you would have lost over 30-40% of your investment by March. So to make the best use of Lumpsum Investing, you need to do thorough research and invest your money wisely.

Difference between SIP and Lumpsum

Well, here are the highlight differences:

SIP Lumpsum
Investment Amount You can start a SIP for as low as Rs 500 Lumpsum investment requires at least Rs 1000, but most mutual Funds have set this at Rs 5000
Monitoring No need to watch the market, simply invest money on a fixed date A constant need to protect the market as the best time to invest is in a Market Low to get more Mutual Fund units for a cheaper price
Discipline SIPs enable you to build an investment as a Habit for your future Lumpsum Investing doesn’t have a direct influence in this regard
Average Costs SIPs help you average out your assets over a period, resulting in Better Returns There is no Averaging here since the Mutual Fund units are being bought in Bulk

Here’s a thought experiment, though. Imagine if, with all your SIPs and Lumpsum investments, even your spare change also kept giving you returns? Wait, did we say thought experiment? This is what we do here at Spenny, and it’s very real. Automatic, effortless, Spare change investing. Do check us out. Happy Investing!

FAQs

Can I set up automatic payments for SIPs?

Yes, with the help of an e-mandate set up from your Bank account, any of the Apps can automatically invest that money as a SIP in the asset you have chosen. Groww, Coin and other Mutual Fund apps allow you to set up SIP in under 5 minutes.

What strategy should be used to Invest a Lumpsum amount?

The best strategy to invest a significant amount should be to put that money in any Debt Mutual Fund which provides higher returns than Fixed Deposits. Now you can withdraw a fixed amount from that Debt Fund and Invest it in the Asset of your choice with SIPs. This way, you won’t have to worry about timing the market, and your money will continue to grow in the Debt Fund.

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Copyright 2021 Spenny Fintech Pvt. Ltd.
Made with ❤️ in India