The number of people investing in mutual funds is increasing rapidly every day. Investors are considering mutual funds as a safe and profitable option to avoid stock market risks. Currently, there are two main ways of investing in mutual funds – the first is SIP (Systematic Investment Plan) and the second is lumpsum i.e. lump sum investment. Both methods have different advantages, and in many ways it also depends on the financial condition of the investor. Let us understand with some examples today which is the best option.
What is the method of investing in SIP?
Investors invest a fixed amount every month in SIP. This amount can range from Rs 200 to Rs 10,000 or more. This type of scheme is beneficial for investors who are not able to invest a lump sum amount. This method of small investments gives them the opportunity to share in the benefits of mutual funds. Apart from this, through SIP, investors are also able to reduce the impact of market fluctuations, because investments are made at different levels every month, due to which the average cost remains balanced. Which in market language is called NAV i.e. Net Asset Value.
Why lumpsum is best?
If the investor has a large amount available, he can choose to invest in lump sum, which increases his chances of getting better returns. For example, lump sum investment under the Infrastructure Fund Scheme of LIC Mutual Fund has given an average annual interest of 29.58% in the last 5 years. A lump sum investment of Rs 6 lakh increases to Rs 21.92 lakh in 5 years. In contrast, an investment of Rs 6 lakh through SIP with an average interest rate of 39.30% has reached Rs 18.65 lakh in the same period.
Get more returns on lumpsum
According to the data of this scheme of LIC, lump sum investment has given higher returns than SIP. There was an additional profit of Rs 3.27 lakh on lump sum investment in 5 years, which shows that lump sum investment can be more profitable. But it is worth noting that this profit also comes with market risk, so investors should take the decision keeping in mind their financial goals, risk appetite and investment period.
Understand the subtle difference between the two here
Both methods of investing in mutual funds have their own specialties. SIP helps in building wealth in the long run with low risk and regular investment habit, whereas lump sum investment may be better for bigger returns. It is very important to understand your financial goals and risk appetite before making any kind of investment.
