Choices are a boon, don't you agree? Well, I sure do. If it wasn't for choices, we wouldn't be here at this article. Either you or I, a choice has for sure brought us together. Maybe it began with choices in the profession, choices in clothing, choices of leading lives, and now we are here, making choices on investing and saving. Wealth creation is a part and parcel of the modern world and future goals. And how to get to the core of wealth creation is the trick. I don't quite think most of us have aced that aspect, and when it comes to strategic ingredients or our every move in money-making. So here, let's learn something new. Something essential that you'd really need.
What would be the better option for you? A lump sum investment or some SIP plans? If you've come to this aspect, you are either in a line with a load of cash stacked up or are sure that you'd be supplied with sufficient money in periodic frequencies. What is it? I wouldn't know, would I? Though I wish this was a two-way conversation, it isn't. So here. Let's discuss both. At the end of it, you'd know what is meant for you. Firstly, let's take some sidelines and basics. Nothing wrong with starting from scratch, is there?
What is a SIP?
A SIP - abbreviation for Systematic Investment Plan. It is small sums of money that are given or deducted from your bank account into the mutual fund that you have chosen to invest in. Based on the frequency you choose, the money gets deducted from your bank account into the mutual fund you have chosen to invest in - it could be daily, weekly, or even monthly.
What is a Lump Sum Investment?
This is when you deposit the entire stash in one go. Investing in mutual funds as a lump payment is a common option. Lump-sum mutual fund investment is when you invest the total money available to you in a mutual fund scheme. For HNIs and big-ticket investors, lump-sum investing is a popular option. It's a great strategy to save money in the long run.
Who Should Invest in a SIP and Why?
Who is it for?
- This scheme is the most suitable for individuals who have a consistent source of income on predetermined time frequencies.
- Investing in SIP plans would not be the right choice for you if you are someone who cannot tell the time and date of your money coming in.
- If you are someone who cannot but a whole share at one go, an SIP is a way to go.
- It will best suit you if you are not too keen on looking out on market fluctuations.
- If you choose on going in a steady line instead of rough ups and downs.
- When you have a preset time in mind for a futuristic goal.
Why Should You Choose a SIP?
You can start small: With SIPs, most mutual fund schemes allow you to start investing with as little as Rs. 500 per month, and isn't that great? This investment amount is considerably lower than the most popular investment options available in the market today. It ensures that even the people in their 20s who have recently started working or began their careers can start investing to meet their future financial goals.
It is flexible: If your savings increases in the future, you have the choice to increase the SIP amount and even start a new one in the same mutual fund scheme of your choice.
Stop or skip: There is no mandate to make the SIP investment every month for any fixed duration. You can skip the SIP for a few months or even stop the investment as and when you like, which means it does not have a lock-in period.
Brings forth discipline: The nature of SIPs is that it adds more discipline to your investment journey, making you a more disciplined investor. An amount that is fixed by you automatically gets invested in the scheme of your choice, eliminating the need for you to make the monthly investments yourself, so leaving no setbacks after you start.
There is transparency: In India, the mutual fund business has risen by leaps and bounds in recent years. AMFI and SEBI have adopted various strict procedures to protect the interests of investors, which must now be followed by every mutual fund scheme and AMC.
For investors who are just starting their investment adventure through SIPs, this has made the mutual fund sector open and safe.
Who Should Invest in a Lump Sum and Why?
Who should invest a lump sum?
- If you have a lump sum money you can put it to your use immediately.
- If you are willing to buy a whole share instantly, it could be anywhere from Rs. 5000 and more.
- If you have a minimum time horizon to come in and leave the market.
Why Should You Invest Lump Sum?
It can come in handy for your Long term goals: while you invest lumpsum you are secured for the long term, whereas small intervals would not be considered for you.
It brings convenience: you do not have to be on the constant lookout when it comes to a lump sum as your investments are being spread out.
You enjoy the power of compounding: well, in SIPs, you would have small amounts, even such as five hundred rupees, which would not give you the benefit of compounding.
Conclusion
Which investor are you going to be? The one with the SIP or the one with the lump sum? It isn't hard to make a choice, but it all depends on your market outlook and finances. Would you be able to buy a whole share? If yes, then go ahead. Or would it hit you financially to do so? Then why don't you pick a SIP of your choice? It all comes down to these two aspects because both ways have their pros and cons.
