Is SIP better or Lump-Sum investment in Mutual Funds?

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“If you don’t find a way to make money while you sleep, you will work until you die” — Warren Buffet

We, humans, want more money to increase our standard of living, to fulfill our needs, to save money. But, the question is all these things enough for a better life? For reaching our goals?

The answer is No, Saving money is important but investing it at the right place at a right time is very important. And when it comes to investment, we have various options like the stock market, Fixed deposits, Savings account, Postal deposits, Mutual fund, etc.

Here, another question that arises is which option we should go for? So, It depends upon individual goals, savings, the expectation of return, Risk appetite, etc.

Now, what are Mutual Funds? Mutual Fund is a type of investment that we do in different companies schemes, Which are managed by experts and professional people. They are having sound knowledge of markets.

So, When it comes to Mutual Funds we have two options for doing an investment either lump-sum investment or systematic Investment Plan(SIP)

In the case of lump-sum investment, as the name suggests it’s a one-time investment, Whereas a systematic investment plan is investing money every month or every week. It is like EMI which gets debited every month or every week and the units according to NAV get credited to your portfolio.

Benefits of lump-sum investment:

• Investor gets the flexibility when to purchase and when to sell the units as per NAV.

• Investment for a bigger amount is possible.

• Certain schemes provide tax benefits e.g. ELSS

Limitations:

• As per the NAV, an investor invests in a lump sum. So, close watch on the market is necessary

• Investor has to initiate the transaction manually.

Benefits of SIP:

• It can be beneficial in the future in case of NAV rise.

• Investor has the flexibility to increase or reduce the SIP’s amount as per his wish.

Stopping SIP is possible, in case the investor is no longer interested in doing SIP.

• Sip provides a compounding effect that can be beneficial to investors in the future.

Limitations:

Market timing may not be favorable every time for doing an investment, But SIP doesn’t consider this fact.

• Many people can’t afford to do investment regularly especially in these times.

Processes for reducing, increasing, or stopping the SIP amount have to be followed. It takes certain days to increase, reduce or stop the sip.

Conclusion:

Lump-sum investment and SIP both have their advantages and disadvantages. So, to go with which option depends upon individual factors.

The most important thing while doing an investment is reading its terms and conditions. As We all know, Mutual Funds do carry market risk.

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