The first thing that comes to mind when you receive your first paycheck is how to save a portion of the amount. You can try as hard as you want, but you will rarely have something left in your bank account once you reach towards the end of the month. Hence, it’s always better to sign up for an investment programme, preferably an SIP investment plan, so that you ensure a sum of your income is always tucked away safely for emergencies in the future.
However, even after you sign up for a mutual fund SIP investment plan, you might still get a bit distracted by the unlimited lump sum investment options that are available in the market.
Let’s understand the key aspects of both the investment plans, and then proceed to make the correct long-term investment decision for yourself.
What Are SIPs?
SIP or Systematic Investment Plans are a type of investment in which investors pledge or sign up to invest a fixed amount of money in the market at regular intervals of time, such as monthly, quarterly, annually or on a semi-annual basis. When you select this type of investment plan, you never have to worry about the timing or the volatility of the market. This is because SIPs usually function on the rupee cost averaging factor.
This way, even short-lived market fluctuations won’t affect your investment amount as compared to investing regularly in the stock market. When it comes to SIPs, the longer you keep your amount invested in the market, the greater your return will be due to the compounding effect.
Benefits of an SIP in mutual funds
- Simple To Start:
Starting an SIP in mutual funds does not require rocket science or a huge amount of money. You can have as low as rupees 100 and still ensure a consistent savings plan for your future.
- Ensures Consistency:
SIP makes sure that a designated sum of money is deducted from your account automatically at regular intervals. The autopay feature, or the automatic deduction of the specified amount, enables you to save the same amount and not get carried away spending it on unnecessary stuff.
- Variety Of Options:
With SIP, you can get a wide range of investment options depending on the amount you wish to invest and your financial goals for it. These options can range from large-cap, small-cap, mid-cap, ETF, etc.
What Are Lump Sum Investments?
Lump sum investment, as the name suggests, involves investing a large chunk of your money all at once. When you invest it all at one go, there will not be any regular deductions from your account for a long time. You just let it sit there and let that investment choice work for you, however you want.
Benefits of a Lump Sum Investment
- Suitable For Large Funds:
You cannot make a lump sum investment with just 100 rupees. These investments usually have an upper limit on the minimum amount of investment. If you have recently gotten a bonus or some inheritance money that does not have anywhere to go, you can easily put it all in one lump sum investment.
- One-Time Investment:
Unlike SIPs, a lump sum investment requires you to invest only one time in the plan of your choice. There is no need to invest that specific amount regularly over a period of time.
- Ideal In Bull Markets:
Lump sum investments will only deliver good returns when the markets are rising. There is not any significant movement in your lump sum investment when the markets are moving at a consistent rate.
Both SIP investment and lump sum investment have their unique advantages. The choice ultimately depends on your financial situation, investment goals, and comfort with market risks. If you’re new to mutual funds, starting a SIP in mutual funds through a trusted mutual fund app is often the smartest first step. It’s simple, flexible, and builds long-term wealth without the stress of timing the market. Whether you invest gradually or all at once, the key is to stay consistent and committed to your financial goals.