Mutual funds are the best way to invest your money if you want your money handled by experts but do not have the resources to monitor your money all the time. Mutual funds are managed by experts and your money is monitored and handled by them to achieve the fund objectives, there are two ways you can invest in mutual funds – lumpsum and SIP.
So the question arises what should you choose? And how do you decide? Worry not! We are here to help you out with the decision.
What factors to consider?
- Amount – The most important thing to consider is obviously the amount you have with you that you wish to invest. If you have a good amount you can set aside to invest you can opt for lumpsum. Whereas if you are a salaried individual with the security of money coming in every month, you can go for SIP.
- Ability to analyse Market Trend – It is important to understand that market trend plays a big role in deciding your lump sum investment. If the market is at a low a lump sum investment will definitely generate higher returns. If you are unable to understand the market trends you can opt for SIP for the regularity.
Some points in favor of SIP-
- Power of compounding – Lump Sum means a one time investment, which means whatever amount you invest gets invested at a certain market level/ market price and your investment experience/ returns are subject to appreciation from that date onwards. however with SIP you keep investing small amounts on regular intervals, it could be daily, weekly, monthly and you buy/invest small amounts on a regular basis which means your purchase price/level is different each. The benefit of this is that you end up buying/investing at various levels, both lower and higher, but in effect your average cost our purchase over a longer period of time turns out to be much lower. Therefore the power of compounding plays into your favor giving you good returns without committing large sums of capital.
- Discipline – With a SIP going you get into a habit of saving a portion of your monthly earnings, and that is a great habit to inculcate while handling personal finances.
Some points in favor of Lump Sum –
- Averaged cost in SIP – With continuous purchasing of SIP, the cost of units are averaged out. Units purchased during market high at higher cost are averaged out by units bought in market lows at a lower cost. However, if you make a lumpsum investment when the market is low you will be able to get higher returns.
- One time payment – As it is evident, with lumpsum payments you only need to set aside an amount once,
In the end, the method of investment depends on various factors which vary for ever individual. You need to assess the factors that work best for you and go ahead. In case of confusion expert advice is just a click away with Sqrrl Prime! After all, investing in any form is better than not investing at all!