Owing to the market upswings, several investors are prompted to look at the stock markets with a certain level of anticipation. However, the experts predict that the markets will soon go into a correction phase. This means that the currently soaring prices of the stock market would drop, and that trend is believed to be there for a long period. As a result, several investors are unsure about the right time to enter the markets as mutual fund investments do not guarantee assured returns to investors. Several investors are also unsure if they should choose the SIP mode of investment or the lumpsum mode of investments. Which one is better? Let’s understand about this more in this article.
Investing in SIP
Under this mode of investing, a pre-determined sum of money is deducted from an investor’s bank account regularly at periodic intervals. Thus, one needs to have great financial commitment to invest in mutual funds via SIP route of investment. However, this discipline and commitment also rewards investors in several forms. For starters, SIP route of investment allows investors to invest a small, insignificant sum of money in mutual funds. In fact, through SIP mode of investment, you can invest in mutual funds an investment amount as low as Rs 100 per month.
Investing in lumpsum
Investing in lumpsum requires investors to invest in mutual funds in one-go. Basically, the entire investment amount is invested at once. This mode of investment is ideal if you have surplus sum of money lying around or recently received a windfall of money. Lumpsum mode of investment can be extremely beneficial if you invest in the right set of investments and invest at the right time. Several investors choose to make a lumpsum investment in their desired mutual fund schemes when the stock valuation of that particular fund and the market in general is low. In this scenario, the markets are inclining towards a bearish market phase.
Which one if better for better returns on mutual fund investments? SIP or lumpsum mode of investment?
There is no right answer for this question. Both SIP and lumpsum mode of investment have the potential to generate a significant amount of money for you. Both these routes of investments have their own sets of pros and cons. Depending on your income levels, regularity of income, risk profile, investment horizon, and financial goals, you must decide the right mode of investment for your investment portfolio. Usually, the SIP mode of investment is more suitable for someone who has regular source of income such as salaried individual. These investors do not wish to time the markets and instead benefit from the concept of rupee cost averaging through SIP investments. On the other hand, lumpsum investment is ideal for someone who is ready to bear certain level of risk in return for the probability of higher returns. These investors have a good understanding of the markets.