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SIP vs. lump sum investment


You can invest in mutual funds in small amounts regularly or with a lump sum amount in one go. Regular investment can be made through Systematic Investment Plans (SIP), while lump sum investment is made in larger sums while opening the mutual fund account, and as per your convenience thereon. It is quite easy to invest in both ways and can be done as per your preference.

While choosing either type of investment would depend on your preference, here are a few differences that could lead your decision.

DifferencesSIPLump sum
What it does to your investment habit and styleSIP promotes a saving habit among investors who don’t have a large chunk of cash to invest. You can invest in SIPs on a monthly, quarterly, or annual basis. The investment made in SIP is not dependent on the market as the same amount is contributed at regular intervals, irrespective of the market conditions.A single transfer of money takes place into the mutual funds online account in lump sum mutual fund investments. The investor generally prefers to invest when the market is about to rise so that the investment appreciates in the short and medium-term.
The need for market monitoringSIP offers a better opportunity for investors who wish to spread their investments across the market cycle without the need for hawk-eyed monitoring and timing. The lump sum investment puts a bigger responsibility on the investor’s shoulders. The investor has to measure his or her entry timing perfectly to maximize the return. A low point in the market is good for entry, as was the case in late March 2020.
Investment sizeIf you don’t have a large amount, SIP is the only investment option for you. You can start investing with even Rs 500 per month. A lump sum investment would require at least Rs 1,000 (Rs 5,000 in most cases) as the minimum investment.
PurposeIf you want to develop a saving habit, SIP is the ideal investment vehicle. SIPs are maintained for a specific duration, so you may start an SIP with a specific financial goal in mind. A lump sum investment is ideal to cash in on the market conditions and use future market growths to your advantage.
Risk appetiteSIP is the lesser risky form of mutual funds as your investments are made at different stages of the market cycle. The cost of the units purchased at a higher price is canceled out by the ones purchased at a bargain price. Lump-sum investments are comparatively speculative as they are invested at a specific stage of the market cycle. There always remains the uncertainty of whether the market plummets further or rises.

Notably, both SIP and lump sum investments tend to grow in the long run since the market itself continues to grow, barring the blips in between.

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