Investment in mutual fund’s schemes can be done in two ways. The first way is investing the whole amount at once i.e. lump sum. The second way is to start a systematic investment plan (SIP). Both ways are very different from each other. Lump sum route involves making an investment in mutual fund scheme in a single instalment while SIP involves investing in fixed instalments throughout the year either on monthly, quarterly or half yearly basis. In this article, we will understand which way of investing is good for you i.e. lump sum vs. SIP.
Let us first learn about which type of investment will give you higher returns.
Lump Sum vs. SIP: Which Type of Investment Will Give You Higher Returns
The stock market condition determines which investment type is better between lump sum and SIP. When the market is in bullish mode or an uptrend, lump sum investment can be considered good, but in the bearish or falling market, SIP will give you better returns in comparison to lump sum investment.
Lump sum and SIP investments both have their advantages but overall SIP investment is considered better than the lump sum. In this section of the article, we shall learn the advantages of SIP over lump sum investment.
Advantages of SIP Over Lump Sum Investment
SIP investments can create good wealth for you because of compounding effect. This is because in SIP you earn returns on the already made returns on your investment. The returns remain invested in the SIP and they keep growing if held for long term horizon.
- Rupee-Cost Averaging
It is not possible for anyone to time the market correctly. In such a scenario, SIP is the best option to go for. This is because in lump sum investment you buy the mutual fund…» Read more