SIP vs Lump Sum: Major Differences

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SIP vs Lump Sum: Major Differences

Registrationwala

Many people invest in mutual funds to grow their wealth. However, it can be difficult to choose between SIP vs Lump Sum - the two methods for investing in mutual funds. While lump sum investment requires investing money in one go, SIP involves investing money periodically at fixed intervals. If you want to know the difference between SIP and Lump Sum before deciding which one is better for you, go through this article.

What is SIP?

SIP full form is Systematic Investment Plan. It is a smart and steady method of investing your money in mutual funds. In this mutual fund investment approach, you are required to contribute a fixed sum of money at regular intervals. 

 

You are not required to invest a large amount of money at one go if you opt for SIP. Even if you invest a small amount of money periodically at fixed intervals, you can still grow your wealth.

 

You can invest as little as Rs. 100 in SIP every month. You can, of course, invest more money than this, such as Rs. 500, Rs. 1000 or more, as long as you’re comfortable with the amount. 

 

By using this investment approach, you can invest in mutual funds in a disciplinary manner without any stress. With time, as you keep investing your money through SIP, you will notice that you’ve accumulated a considerable amount of funds for investment purposes. Eventually, you can reach your financial goals achievable by mutual funds. SIP is ideal for you if you cannot invest a considerable amount of money at once.

What is Lump Sum Investment?

Lump sum investment is another way to invest your money in mutual funds. It requires individuals to invest their money in mutual funds in one go. Generally, the amount of money invested in mutual funds through a lump sum investment approach is a large amount. 

 

If you invest a large sum of money into a mutual fund scheme at once, you do not have to stress about investing your money in a periodic manner. Once you’ve invested the entire amount at once, you only have to wait for your mutual fund investment to grow enough to fulfill your financial goals.

 

However, one thing that needs to be taken into account is that, in case of lump sum investment, you can face higher initial risk. Your value of investment can experience immediate fluctuations, which can result in substantial losses or gains. 

SIP vs Lump Sum: Table of Difference

The table below represents the difference between SIP vs Lump Sum Investment. By going through this table, you can easily understand all the major differences between them. This will allow you to choose between SIP vs Lump Sum easily.

Parameters

SIP

Lump Sum

Investment Approach

SIP requires investing a fixed sum of money at regular intervals.

Lump Sum Investment requires investing a considerable amount of money at once.

Equity Market Experience

Ideal for Beginners

Ideal for Experienced Investors

Financial Goals

Ideal for long-term financial goals.

Ideal for short-term financial goals.

Risk Factor

SIP is generally regarded as a low risk investment approach.

The Lump Sum Investment approach is often regarded as a high risk approach.

Possibility of Averaging Down Cost

Yes, possible.

Not possible.

Returns

Moderately High in long-term

Moderately High in short-term

Conclusion

Both SIP and Lump Sum Investment are ways of investing your money in mutual fund schemes. Whether you choose SIP vs Lump Sum, it is completely your choice. However, make sure you consider the risk factor, financial goal and your equity market experience before making the right choice. 

 

If you want to distribute mutual fund schemes in India, connect with Registrationwala. We’ll help you to obtain the Mutual Fund Distributor License from AMFI.

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