SIP vs Lumpsum: There is turmoil in the stock market these days. Many investors are holding their breath after seeing the red mark, but in the eyes of market experts, this is not a reason to panic, but a great opportunity. In this period of decline, there is a competition to invest in good companies and mutual funds at cheap prices. But the biggest question in the mind of a common investor is how to invest money in this falling market? Is it better to invest all your money at once (lump sum), or is it safer to invest a small amount every month (SIP)? Let us solve this confusion and understand which method can prove to be most suitable for increasing your hard-earned money.
Be afraid of a falling market or take advantage of the opportunity?
Whenever the market takes a dive, the common thought is to withdraw money. But financial experts consider this a great investment opportunity. However, the biggest truth of the stock market is that no one can accurately predict when this decline will stop and when the market will touch new heights again. Due to this uncertainty, the choice of investment method becomes very important. In the lump sum method, you hand over your entire capital to the market in one go. Whereas, through SIP, you invest a fixed amount every month with discipline.
Is it wise to invest money at once?
Imagine that today, seeing the falling market, you invested all your money in lump sum. But what is the guarantee that the market will not fall further tomorrow? If the market drops further soon after you invest, the value of your portfolio will decline rapidly. To compensate for this loss, you will have to wait until the market comes back to your investment level. This entire process may take a long time. Therefore, when the market is continuously falling, lump sum investment may prove to be a risky move.
How to make profits even in downturns
SIP acts as a great security blanket in a volatile market. When you invest through SIP, your risk reduces to a great extent. The direct reason for this is cost averaging of your purchase costs.
Let us understand this with an easy example. Suppose, you deposited the SIP installment on March 5, when the market index (Nifty) was at the level of 24,600. Now if the market falls further to Rs 24,000 on the 5th of the next month, then you will not suffer any loss. The benefit of this decline will be that you will get more units of mutual fund for the same fixed amount. On the contrary, if the market increases to Rs 25,000, you will get less units. Over the long term, this fluctuation averages out your purchase rate, making SIP a very profitable investment in a downturn.
The ‘middle path’ of smart investors
Experienced market players often adopt a particular strategy. Even if they have a large amount of money to invest, they do not risk it all at once. Instead, they choose a ‘middle path’. They invest a small part of their total amount in lump sum and gradually invest the remaining capital in the market through SIP every month. In this way, they get immediate benefit from market decline and future risk is also distributed. Financial experts believe that the biggest mantra of success in the stock market is ‘time’. If you have a long-term perspective, then taking advantage of this market decline can prove to be very beneficial for your future.
Disclaimer: This article is for information only and should not be considered as investment advice in any way. TV9 Bharatvarsha advises its readers and viewers to consult their financial advisors before taking any money-related decisions.