SIP vs Lump sum Investment: When the stock market falls, many investors consider it an investment opportunity and plan to invest money at a lower price. At such times, the question often arises whether it would be better to invest lump sum in mutual funds or it would be better to invest money gradually through Systematic Investment Plan (SIP).
Actually both methods have their advantages. In lump sum investment, the entire amount is invested at once, whereas in SIP, small amounts are invested at fixed intervals. Let us know about this…
What is the difference between lump sum and SIP investment?
Experts sometimes consider the decline in the market as a good investment opportunity, but it is difficult to say for how long this decline will continue. In such a situation, two common methods of investment emerge. Lump sum investment and SIP.
In lump sum investment, the investor invests the entire amount at once, whereas in SIP, a fixed amount is invested gradually every month.
SIP is right during market decline
Whenever there is a decline in the market, the question that comes in the minds of investors is whether to invest lump sum money or continue investing through SIP. In this regard, market experts say that SIP can be a better option in a falling market.
The reason behind this is that the value of lump sum investment may reduce in a falling market. Due to which recovery takes time. Whereas by investing through SIP the purchase price remains average.
Let us understand this with an example, if a person invests through SIP on March 6 and at that time Nifty was at Rs 24,500. If Nifty falls on the same date next month and at that time Nifty is trading at the level of 24,000, then the investor will be allotted more units than before. Investors may also get opposite results.
You can also invest by combining both methods
There are some investors who have money to invest in lump sum, but they avoid investing the entire amount at once. Such investors usually invest a small amount at once and invest the remaining money gradually every month through SIP.
In this way they can get the benefit of cost averaging. However, experts believe that if a person is investing for a long term, then he can choose any one of these two methods as per his convenience and strategy.
Disclaimer: (The information provided here is being given for information only. It is important to mention here that investment in the market is subject to market risks. Always take expert advice before investing money as an investor. ABPLive.com never advises anyone to invest money here.)
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