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Systematic Investment Plan Versus Lump sum Investment

Systematic Investment Plan Versus Lump sum Investment

There are some old and important debates, Systematic Investment Plan Versus Lump sum Investment is one of them. Asset Management Company (AMC) came and ages have passed since new funds were introduced in the market. But the curiosity of investors remains the same. Both of the sides have pros and cons. There are arguments about how one is better than other or not. It’s like a toss, sometimes head wins and sometimes the tail. However, it depends on market condition to say which one is better.

According to PTIC INDIA – Financial Planner in Delhi, Mutual fund investment could be confusing for you. So first you have to understand the fundamental difference between Systematic Investment Plan Versus Lump sum. In case of the Lump sum, Investors have to invest all amount in one go. And in Systematic Investment, investors have to pay a premium at regular intervals. The main difference lies in cash flows. It is generally assumed that SIP gives good return than a Lump sum. So let’s look into how lump sum and SIP can be used by investors.

Systematic Investment Plan (SIP):

Systematic Investment Plan (SIP) has been designed to allow investors the ease of investment where investors pay the surplus at regular intervals. Investments through SIP can be done in an automated manner without the interference of the investor in the process.

Young Investors: It is best suited for young investors, who may have sums as small as Rs. 500. It allows them to get their first taste of investment.

Regular Income: It is also suited for individuals who have a regular flow of income and surplus. SIP allows investors the flexibility to continue investments even if they have missed a month. They can add additional investments to an ongoing SIP in case of excess surplus.

Know the Exact Amount: If an investor knows the exact amount they have to achieve the future goal then SIP investments can aid in that. They can calculate that investing Rs. 10,000 for the course of next 20 to 30 years on an average return of 15 – 18% will be enough to reach their goals and might have a surplus at the end of it. In case they feel that the investment is lagging behind they can add lump sum at the end but the continuous monthly payment allows them to reach a hefty corpus.

Lump Sum Investment:

The lump sum is that mode of investment which allows seasoned investors or individuals with large amounts of surplus to invest in one go. This ensures that the money does not lie ideally in a bank account losing out on the compounding value.

Seasoned investors: They may have generated large sums of returns which they wish to reinvest in one go. With age, their income may have also progressed allowing them to have larger amounts of surplus. Seasoned investors also understand the market a little better than the newcomers. Hence, they can invest the lump sum when the market is a low gaining more units in a fund.

Uncertain income: Individuals with uncertain but substantial cash flow may prefer to invest via lump sum rather than missing out on SIP payments. This allows them to stay invested despite differing cash flows. This investment can aid you during lean times when you could withdraw from the lump sum using the Systematic Withdrawal Plan. This does not require you to redeem the entire corpus rather a stipulated amount at a time and the rest of the corpus keep earning returns.

In the end, the decision totally depends on the investors. The decision is taken on the basis of their income, their cash flow, and their financial goals. If you have surplus amount to invest, you can go for Lump sum investment. And if one has a regular income, he can go for SIP (Systematic Investment Plan). While the debate rages on, you make an informed choice and leave the investment for a long-term by consulting with your mutual fund advisors or your financial planner.

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