Investing in mutual funds in today’s time has become the best way to create wealth and gain greater financial freedom. However, mutual fund investing also comes with two distinct strategies, which are SIP and lump sum investing. They both employ different calculation methods, ranging from the use of an SIP calculator online to lump sum plan calculators, including an examination of associated risks, benefits and more.
Understanding the differences between the two investment strategies can help you make informed decisions and choose the right path to achieve your financial goals.
What is SIP Investment?
The SIP investment plan involves investing in mutual funds on a regular basis with a specified investment amount. These investments can be made on a monthly basis, starting from as low as ₹100 per month. It is a great investment plan for creating wealth over a long period of time. You can even use the SIP calculator online to get your estimated returns on investment on your chosen plan to get a better idea.
Benefits of SIP Investment
- SIP investment is easy to start and beginner-friendly. You can start with as low as ₹500 per month.
- SIPs are flexible and give you customisation options. For example, if you have been investing ₹5,000 per month, but in one month, you can only contribute ₹3,000, then you can do so.
- In SIP investment, you do not have to worry much about market performance, as it averages out the cost of investment.
What is a Lump Sum Investment?
As its name suggests, a lump sum investment involves investing a one-time large amount in mutual funds. The single lump sum payment is made at the beginning of the investment plan, with no subsequent payments. The returns on lump sum investments depend on the amount invested and market performance. You can use a lump sum investment calculator to get the estimated return value of your investment.
Benefits of Lump Sum Investment
- In a lump-sum investment, you can make one-time contributions and have to monitor the progress.
- A lump-sum investment strategy is great if you have large surplus funds. Whether it’s a bonus or an inheritance, you can invest it.
- There are no investment gaps in lump-sum investment. Your investments will yield returns from day one, without any delay.
Difference between SIP Investment and Lump Sum Investment
| Basis | SIP Investment | Lump Sum Investment |
| Approach | The sum of money is invested on a regular basis. | A large sum is invested at one time. |
| Market Affect | There is less need to time the market, as the average cost is spread out over time. | Market timing is crucial for achieving maximum profits. |
| Risk | Lower risk | Higher risk |
| Flexibility | More flexibility as the amount can be adjusted or paused as required. | Less flexibility, as the amount is paid upfront. |
| Investment Duration | Can be invested for a long duration. | It can be invested in for both long-term and short-term purposes. |
SIP Vs Lump Sum Investing: Which One to Choose?
SIP vs lump sum, both investment methods have their positive benefits; it all depends on which one fulfils your investment requirements. While SIP involves systematic investment over some time, lump sum pay involves investing all at once. Whichever strategy you choose, make sure to use tools like the SIP calculator online and the lump sum calculator to make a calculated choice. Moreover, start as early as possible to get the best results.
