Should you invest a lump sum amount at once, or should you opt for a Systematic Investment Plan (SIP)? Let’s find out which is best for volatile market.
The stock market has seen very volatility over the past few months, leading to considerable losses for many investors. In such uncertain times, if you are planning to start a Systematic Investment Plan (SIP), you might be wondering what the best option is. Should you opt for a weekly, monthly, or quarterly SIP, or would a lump sum investment be more suitable? To clear the confusion, equity market expert and Chief Business Officer of PGIM India Mutual Fund, Abhishek Tiwari, shares his insights on what strategy may work best in the current market scenario.
Benefits of SIP
SIP is a facility under which you invest a fixed amount in a mutual fund scheme every month or every 3 months on a date chosen by you. SIP is a great way to develop the habit of regular investment.
- SIP is an automated and disciplined way to invest, making efficient use of the money lying idle in your bank account, money you might otherwise spend unnecessarily.
- For asset classes known for high volatility, such as the stock market, investing small amounts at regular intervals through SIPs can help reduce risk and average out the cost over time.
- SIPs can be aligned with any financial goal, whether short-term or long-term.
- It is advisable to maintain separate SIPs for different goals, so that when a goal is about to be achieved, you know from which SIP to withdraw money.
- If you do SIP in equity fund and the investment period is 10 years or more, then the chances of getting negative returns are very less.
Who should consider a Lump Sum investment?
- A lump sum investment can be a suitable option for those whose income is not fixed.
- If you suddenly get a large amount of money from a bonus, gift, or any other source, then you can invest that amount as a lump sum in a mutual fund scheme, even if you already have an SIP running in the same fund.
- Lump sum investment is also ideal for asset classes that offer relatively stable returns, such as debt funds.
SIP vs Lump Sum: Which is better?
Compared to SIP and lump sum investment, SIP is generally the better choice. It makes you a disciplined investor and often helps you get better returns on investment. On the other hand, by investing a lump sum amount, you are not able to get the benefit that you are entitled to.
However, the right choice ultimately depends on your income pattern and financial situation. For those who have a fixed income every month, SIP is a better option because it works according to their monthly income and expenses. For individuals with a fixed monthly income, SIP is ideal. It aligns well with monthly cash flow and helps manage expenses alongside investments. For those with irregular income, a lump sum investment may be more suitable. In short, choose the method that best fits your financial consistency and goals.
Disclaimer: This article is written for information purposes only. Before making any kind of investment or taking any financial risk, please consult your financial advisor. India TV will not be responsible for any kind of risk.
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