SIP, short for Systematic Investment Plan, is a mode of investment in mutual fund schemes. As mentioned, funds come with two modes of investment. In the lumpsum mode, you can save up a sizable amount and invest it. However, in SIP, you make regular investments in a particular fund.
These may be monthly, quarterly, or of other durations as specified in the scheme you choose. SIP is often considered an affordable and comfortable way to invest as you need not strain your finances.
Managed by fund managers, mutual funds pool your investment with that of other investors. The fund manager then invests the accumulated corpus into instruments that align with the fund’s primary objective.
Mutual funds help in diversifying your portfolio and lower the risk. This is because the investment happens on a smaller scale and in multiple asset classes, sectors, and more.
Comparing the benefits of SIP vs. lumpsum can help you choose the right investment mode.
However, the answer depends on your current finances and goals. If you have the capacity to make a substantial one-time investment, you can go for a lump sum. If not, opt for SIP.
A SIP usually offers more flexibility as the minimum investment is comparatively lower than the lumpsum mode. Also, remember that a SIP offers higher gains if you stay invested for a lengthy duration. A lump sum can offer growth sooner.
However, remember that SIP investments spread your risk and protect your capital. If you want to do the same with a lump sum investment, you may need to be aware of market movements and invest at the right time.
SIPs allow you to benefit from investing at different cycles and do not require any planning or prior knowledge. So, consider your risk appetite and understanding of markets before you choose between SIP or a lumpsum investment in mutual funds.
Here are some crucial points to keep in mind when planning your mutual fund investment:
Assess your risk tolerance and financial capacity
Review your investment goals and horizon
Check and compare the past performance of schemes
Consider the tax liability associated with mutual fund gains
Use online tools to gauge your risk and returns
Remember to diversify your portfolio to mitigate risks
You can use online tools like the SIP calculator to estimate your returns and ensure it aligns with your requirements.
Once you finalise your scheme and mode, invest with ease via Bajaj Markets. With online tools and insights, a fast process to get started, and zero commission, you can make informed decisions for better financial growth.
FAQs on SIP vs Mutual Funds
Are SIPs and mutual funds the same?
No, mutual funds are an investment avenue, i.e., something you invest in. On the other hand, SIP is an investment mode that allows you to invest in mutual funds periodically.
Is SIP better than a mutual fund?
SIP is a route of investing in mutual funds. As such, one is not better than the other. However, if you want to choose between the investment modes, i.e., SIP and lumpsum, you can do so by assessing your current finances and investment goals.
SIPs are generally better for those who want to invest periodically and for the long term. Lumpsum investment is for those who have idle funds and want to make the most of them.
How to choose between SIP and lumpsum?
If you want to make low-risk investments for the long term, you can choose SIP. You can opt for a lumpsum investment if you want to leverage a bearish market. This also requires you to have a corpus of funds ready for investment.
Which is better for profits, SIP or lumpsum?
Both investment modes, SIP and lumpsum, can result in good returns. A SIP can leverage the power of compounding over time, and with a lumpsum investment, you can leverage a bearish market.
As such, the better option is the one that fits your current and future requirements.
However, keep in mind that lumpsum investments allow you to create a bigger corpus of funds over time if you time your investment right.
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