SIP and Lumpsum investments

SIP vs Lumpsum Investment: Which Method to choose

When you think of investing, it comes with choices. Apart from which schemes to invest in, you can also choose how invest in mutual funds. Mutual funds offer SIP and lumpsum investments options.

You can make a one-time investment in mutual funds via a lumpsum investment or can choose to spread it out over a period of time through a Systematic Investment Plan (SIP). The mode of investment can make difference in your portfolio. To understand the differences, first we need to understand SIP and Lumpsum investment

Understanding SIP and Lumpsum Investment

Both SIP and lumpsum investments allow you to benefit from wealth creation through mutual funds. However, the primary difference between SIP and lumpsum methods is the frequency of investments made.

SIPs allows you to invest money into a mutual fund scheme periodically. This period can vary from daily, weekly, monthly, quarterly, half-yearly etc. On the other hand, lump-sum investments are a one-time investment in a particular scheme. The minimum investment amount also varies in these two schemes. You can begin investing in SIPs with as little as Rs.500 per month while generally lump-sum investments need at least Rs.1,000.

If you are an investor with a small but regular amount of money available for investment, SIPs can be a more suitable investment option. For investors with a relatively high investment amount and risk tolerance, lump-sum investments may be more beneficial.

Comparison of the two methods – SIP vs Lumpsum

1. Investors don’t have to monitor market regularly

Since lump-sum investments are a bulk and one time commitment, investors need to know when they are entering the market. Lump-sum investments are most beneficial when you invest during a market low. However, with SIPs, you get benefit of averaging as you have chance to enter during different market cycles. Investors do not have to watch market movements as closely as they would for lump-sum investments.

2. Lower Investment Requirement

You can begin investing in SIPs with as little as Rs. 500 per month  On the other hand, lump-sum investments need at least Rs.1,000, although most mutual funds in India set the lower limit at Rs.5,000. Investors can use SIP calculator to calculate and estimate the returns on their SIP investment.

3. Averaged costs

As SIP leads to mutual fund purchases during different market cycles, the cost per unit is averaged out over the overall investment horizon. More number of units are purchased during a market low, compensating for purchases made during a market high. This can help tide over market fluctuations and even out the cost. Units can then be sold when the market is performing well.

4. Power of compounding

The interest earned on SIP investments are reinvested in the scheme. Here, the compounding effect helps generate greater returns.

5. Inculcates financial discipline

SIP gets you into habit of saving frequently. Most of the banks today allow you the option of auto debit from account on monthly basis.

Factors to consider before investing

1. Amount

If you have bulk amount at disposal, lumpsum way is a good option so that you don’t end up spending money. On the other hand, if you are a salaried person, SIP is better option to inculcate saving habit.

2. Market Timing

For bulk investment, better to enter during market low as it will generate higher returns. However, SIP will help you distribute the risk.

3. Fund Type

For Equity Funds, market status plays important role as these funds majorly depend on market performance and hence the returns. However, Debt Funds as less dependent on market fluctuations.


Choosing a SIP over a lump-sum investment should be based on your personal requirements. Factors such as income, financial stability, investment goals, and risk capacity must determine the route of investment.

That said, experts believe that SIPs are superior on two counts: they can help you tide over market fluctuations and be a good investment option even for novice investors since they do not necessitate frequent monitoring of financial markets.

Contact Us to get more details about these methods.

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