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Which Is Better, An SIP Or A Lump Sum Investment?

Should I do a SIP in a mutual fund and invest a bit every month or invest all the money at one go? This is one of the most common questions that comes to the minds of investors, new or experienced.

Should I do a SIP in a mutual fund and invest a bit every month or invest all the money at one go? This is one of the most common questions that comes to the minds of investors, new or experienced.

Why do you think you are thinking about this?

Think about why this question is coming to your mind. You are probably thinking that “investing everything at a go sounds a bit risky. After all, what if the market suddenly falls? My investment value will go down.”

The markets can also go the other way and your investment value might go up. Thus, the confusion in your mind.

The reality is that nobody has really been able to predict the markets so you are left with an equal chance of the market going up or going down. The markets are equally unreadable for everyone.

Do you want to know a curious truth?

History and power of compounding tells us that investing earlier matters more than anything else. So, investing earlier is better than later.

An SIP is simply a way to invest when you have the money. Most of us don’t have large sums appearing suddenly. We get a salary and invest a little bit of that every month. At that point, that is the lump sum!

But if you do have a lump sum to invest you can choose to go the SIP way or invest it all at one go. Investing at one go is technically better, but it will hardly matter, as the difference in returns for a long term investor will not be too great.

We understand that while your mind may understand the logic, your heart will still be circumspect. What if the day after you decide to invest the market has the worst crash in history? The probability of that happening is negligible, but what if?

So, if fear is holding you back, go with an SIP. Do what feels easier for you.

In the long run, what will really matter is that you did in fact invest and stayed invested for the appropriate duration.

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*Return assumption upto 5 years is 8% (debt funds) and beyond 5 years is 14% (equity mutual fund).
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