There is a variety in investors. There are different types of investors who invest in mutual fund. In which category do you count yourself? Well, it is okay if you don’t have any idea about what to do and how. There are obviously different options out there to choose from.
Okay so you are perplexed about Sip vs lump sum investment mutual fund right? In case you are a disciplined investor, then you can follow both the paths and strategies. A lump sum investment caters you more time to investment. It will end up in higher returns since the power of compounding enhances as the time passes by. By following the SIP path, you would invest in the markets during higher levels and also at lower levels. Similarly you shall get a weighted average return over duration of time.
At an annual return of fifteen percent, Rs 15 lakh can be worth around Rs 60, 00,000 at the end of your ten years. Taking into consideration the same annual rate of fifteen percent, your monthly SIP of Rs eight thousand shall yield nearly Rs 22, 30,000 at the end of the time of ten years. However, it all relies on how much money you presently have in your hand. In case you have Rs 15 lakh to invest, you must ideally drop the money in a liquid fund and begin a Systematic Transfer Plan (STP) over the next fifty weeks. It would be, Rs 30,000 per transfer. It is the method that would help you to invest your whole money and earn returns from that of the liquid funds on a decreasing balance method. The amount invested through STP has to be in a diversified equity fund. At the end of fifty weeks, you shall be fully invested in an equity fund. The power of compounding shall work for you on the entire Rs 15 lakh for nine years in an equity fund that should earn higher returns than that of the liquid fund. In case you don’t have a lump sum to invest, then you must adopt the SIP route.
Lump sum in increasing markets
So when the market is going up continuously, lump sum investment is going to give a higher return as the base or price is lower but in practice, the market never goes really up or down continuously. Lump sum is productive when the market is actually low but it is problematic to calculate the market’s low. One can be wrong about the valuation of low and might end up entering at the wrong time.
The only drawback of lump sum is that only a few people have the guts to again invest in case they have extra money and their previous investment is giving an undesirable return. Suppose investors had invested lump sum in the month of December 2007 when the market was trading at its top. Investors would have powerlessly watched the market fall till the month of March 2009 but in case an individual shall have invested lump sum at lows during March 2009 then he might have made big advances.
Thus, since you know a broad outline of this SIP and Lump sum, you must be in a position to make a sensible decision!