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.
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.
SIPs are now a standard tool when investing in Mutual Funds, Stocks, or even Cryptocurrency and have the following benefits:
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 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.
Lumpsum investing is usually preferred by the risk-takers, as it has its benefits.
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.
Well, here are the highlight differences:
|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!
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.
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.