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SIP or LumpSum Which is the Better Way of Investing

Investing comes with a lot of options and choices. And for someone who is not a finance enthusiast, or a layman to the investment market, it can be quite a daunting task to figure out what’s and how’s. A wrong investment decision can lead to you losing your hard-earned money in a matter of just seconds.

There are primarily two ways through which one can invest— SIP or lump-sum. While both allow wealth creation, the primary difference between the two lies in the frequency of the investment. Both methods have their advantages and disadvantages, and the choice should be made after carefully considering the options available. Let’s weigh in on their characteristics so that you can finally choose for yourself.

Sl. No. Basis Systematic Investment Plans Lump-Sum Investment
1. Definition SIP is a more disciplined and planned way of investing where a predetermined amount is deducted automatically from your bank account for a predetermined amount of time. Lump-sum investment is when you put in a huge amount into a chosen equity fund at one go.
2. Market timing SIP’s allow you to enter the market irrespective of the market condition. You will not have to monitor market movements as closely as possible. Since lump-sums are a bulk commitment, it requires you to monitor the market more closely and constantly. It’s best to enter when the market is low, as a lump-sum will then generate higher returns.
3. The amount to invest If you’re salaried, and considering investment only to inculcate a habit of saving, SIP is a great option. If you have a bulky amount at your disposal, lump sum can be the perfect option.
4. Minimum amount for investment You can invest in SIP with as low as Rs. 500, making it an ideal choice for beginners. The minimum amount required to invest is Rs. 1000.
5. Returns received Since the interest generated on SIP is compounded, the benefit is greater than lump-sum. The interest received is comparatively lower, because the interest is calculated as simple interest.
6. Risk involved SIP is a less stressful way of investing as the risk is spread out over a period of time. Additionally, it also helps inculcate a sense of savings or financial discipline. Lump-sum investment can be comparatively riskier, as it will fluctuate a lot depending on the market highs and lows. However, spreading it into 5-6 lump-sums is always a better option than putting it into one.

Nevertheless, both the options are very worthy ways of investing. But the choice of choosing between the two depends entirely on the risk profile you’re willing to undertake. That said, SIP’s are usually a better option because it helps lay out the risks and is a great option for novices as it requires little or no market monitoring.

That said, to make your job easier and for you to have a clearer view of what will be the returns on your investment, you can always use a SIP calculator, like the one by CRED. A SIP return calculator helps you get a rough idea of all the necessary details and keeps you informed.

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