One of the most typical dilemmas for new equity investors is deciding whether to invest through a Systematic Investment Plan (SIP) or a lump amount. Which of these investing paths will yield the most returns?
Puzzled?
There is no need to look any further. This blog will go over both investment options. We will compare their results and determine the optimal investment approach for investing large sums in the markets. Let’s start with the distinction between SIP and lumpsum investments.
SIP Investment VS Lumpsum investment
| SIP Investment | Lumpsum Investment |
| Because SIP investments are recurring, you can enter the market at several market cycles. As a result, you do not need to time the market. | Lumpsum investments are one-time investments. You need to be aware of the market cycles or trends to identify the right time to invest a lumpsum amount. This investment is generally opted for when the market is bearish. |
| SIP investments have a low entry barrier. This also makes them suitable for beginners. Monexo Grow allows you to invest as little as Rs. 5000. | Lumpsum investment is preferred by experienced investors who have a high-risk tolerance. You need to invest at least Rs. 1000 for lumpsum investments. |
| You might choose to reinvest the interest gained on SIP investments. The force of compounding, when combined with newer installments, can yield higher profits. | You might choose to reinvest the interest gained on SIP investments. The force of compounding, when combined with newer installments, can yield higher profits. |
| SIP instills the habit of saving regularly. | SIP promotes the habit of saving regularly. |
Choosing Between SIP & Lumpsum Investment
Before deciding whether to make a one-time investment or follow a regular investment plan, you need carefully evaluate a few aspects, such as your financial goals. These elements are as follows:
Risk Appetite
The key distinction between Lumpsum investments and SIPs is the degree of risk involved. SIPs provide greater capital protection because you only invest a percentage of your overall corpus in the plan. Monexo Grow helps you mitigate risk by diversifying investment across different loans available.
For example, if you invest Rs. 1,20,000 in a financial year, you only have to pay Rs. 10,000 every month in SIP. It spreads the entire investment and reduces the risk involved. Borrowers with a higher risk appetite can opt for a one-time investment, as it divests the total amount into the market all in one go. It also promises considerably better returns than other policies.
Lock-In Period
SIPs and Lumpsum investments have differing lock-in lengths; SIPs typically give a minimum three-year lock-in that matures sequentially, but Lumpsum investments are unlocked after three years all at once.
Things to Consider Before Investing
Several variables should be considered before investing via SIP or lump amount. These considerations can assist you in making the best investing selections and achieving your financial objectives. Here are some of the factors to think about:
Investment Amount
SIPs are appropriate if you have a consistent source of income. For example, if you are salaried, SIP is perfect since you can invest a portion of your earnings on a regular basis. If you have spare funds, you may want to invest in a lump sum.
Financial Goals
SIP is the greatest solution if you have a long-term goal, such as wealth growth, retirement preparation, children’s education, and so on. If you want to know if the SIP will be able to meet your financial goals, use the SIP calculator to determine your SIP return.
If you have idle cash in your bank account and want to park it in peer to peer investing, you can make a lump sum investment. It will enable you to receive non-market linked returns that are significantly superior to the interest obtained in savings accounts or other traditional investments such as fixed deposits.
Type of Fund
Because equity funds are highly volatile, they are affected by market swings. As a result, SIP is an excellent choice in this sort of fund because it protects against market ups and downs. Debt funds, on the other hand, are less affected by market fluctuations. They are likely to provide comparable returns on lump sum and SIP investments, making them a trustworthy choice for investors seeking consistency and reduced risk.
A peer-to-peer investment is an excellent choice for investors who prefer stable returns rather than dealing with volatile markets.
Conclusion
Because we can’t forecast the future, setting up a SIP is the only way to limit the volatility that comes with investing. SIPs shield you from large losses. This is critical since it will help you stay on track with your investing. SIPs will perform adequately under most conditions and over a sufficiently long period of time. As a result, if you don’t have a significant lump sum to invest, don’t put it off. Begin with a SIP of whatever amount you can afford. Believe us when we say that it has the potential to produce significant long-term results.
Even if you have a large sum to invest, spread it over a six to twelve month SIP to average your costs and lessen the danger of investing. It also helps to avoid panic during difficult times, resulting in a healthy return in the long run.
