Should you choose the SIP or Lump Sum mode?

You can invest in mutual funds in two ways- either through Systematic Investment Plan (SIP) or in a lump sum. Before choosing an investment method make sure that you take into consideration your risk appetite, the type of underlying asset class, market situation, among other factors.

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Here is a quick rundown of the pros and cons of both the modes of investment to ascertain which one would work best for you under different situations.

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

Pros and Cons of SIP Investment Plan

If you do not have a lump-sum amount you can start a SIP in mutual funds. Let’s say, you want to invest Rs. 1.2 lakh in a year, and do not have the entire amount, then you can invest Rs. 10,000 every month.  

If you choose the SIP method then you can benefit from the 'rupee cost averaging’ in the long-term. What happens is you buy the units of a mutual fund at different price points, which in turn reduces your purchase costs and increases the chances of earning profits on the same units. When you stay invested for a longer duration you are likely to get better results in comparison to a shorter duration.

SIP investments protect the invested amount from market volatility in the long-term. By investing a particular amount every month it is easier to build a big corpus over a period of time. So, when the market dips, your fund house can buy more units at a lower NAV/ net asset value. Conversely, when the market improves, you gain profits and can cash out.

Therefore, even in the falling markets, your investment portfolio is always inclined towards profits, and there are higher chances of getting profitable returns when the market turns positive.

Pros and Cons of Lump-sum Investment

On the other hand, lump sum is a one-time investment and you can invest Rs. 1.2 lakh for the entire year in one go. All you need is the entire money in hand and a higher risk tolerance.

One challenge with lump sum investments is that you need to time the market in order to get higher returns. And it is usually not possible to identify a perfect time to invest money.

And if you invest at a wrong time, there are higher chances of you incurring losses that are only recoverable in months or years. Thus it makes sense to choose the lump sum mode only if you have a risk appetite and can wait for longer durations to get profitable returns. And the more risk you take the more will be chances of getting good returns.

And if you do not want to take risks and still have chosen the lump sum investment mode then you can consider investing in debt funds. There are lesser chances of incurring losses and can expect moderate returns on your investments.  

And if someone is approaching their retirement days then it is suggested to invest in lump sum in debt funds only.

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

Why Systematic Investment Plan Scores over Lump Sum

  • Power of Compounding: A SIP investment plan allows you to increase your investment amount periodically and get the benefit of compounding. Basically, you earn returns on the returns generated on the amount invested.
  • Rupee-Cost Averaging: A SIP investment plan helps benefit during market movements. On the other hand, if you choose to go the lump sum way, your fund house will buy lesser units when markets rise and more units when it falls. And if you choose the SIP method, it helps in lowering the average investment cost and reduces the risk, known as rupee-cost averaging.
  • No-Stress-Involved: If you stay invested in a SIP investment plan it will be less stressful in comparison to lump sum investment. In the case of lump sum investments, you might be induced to withdraw your money when the markets are highly volatile. However, market volatility has a lower impact on investments done through SIPs because the money is spread out over a period of time.

How to Invest in Different market Situations?

When the Market Looks Promising

Lump sum can offer your better returns in comparison to SIPs.

For instance, if the NAV of a mutual fund is Rs. 100 and is likely to reach Rs. 200 in the next 3 years, then you can expect higher returns by investing the entire fund at an NAV of Rs. 100.  And if you choose the SIP method, your average NAV-buying level would rise and your return on investment can fall significantly.

When the Market is Volatile

If the market looks uncertain, or is going through a market correction, investing through the SIP mode would be more useful. During market volatilities, lump-sum investment can get you negative returns in the long-term; on the other hand, SIPs can offer you excellent returns in the long-run.

For instance, if you invest in an equity fund with a NAV of Rs. 100 and it falls down to Rs. 60-70 levels in the next 2 years, and it recovers to Rs. 100 in the 3rd year.

Here are the two scenarios:

SIP Method: Positive returns because SIPs allow you to invest in the falling markets also

Lump sum Investment at Rs. 100: No returns

To Conclude

As you can see if you want to play it safe, it makes sense to choose the SIP method to benefit from the volatile markets in the long-term. By regular investments, you can build a corpus over a period of time.

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Should you choose the SIP or Lump Sum mode? Reviews & Ratings

4.3 / 5 (Based on 25 Reviews)
(Showing Newest 25 reviews)
Raj
Ooty, September 02, 2020
Start with minimum amount
I have recently got the SIP plan from the policybazaar and it is really easy to get the plan from the online market. Not only this you can also start from the minimum amount of Rs. 500. It is very much convenient in nature and I really love my plan. Thank you policybazaar.
Adnan
Kohima, September 02, 2020
Great assistance
I have got the good amount of benefits from the policybazaar. The customer care team of policybazaar is very good and they understood my query very well. Thank you so much team for better assistance.
Suraj
Yamunanagar, September 01, 2020
Long term and beneficial
It is always a preferred thing that to get the SIP plan for the longer period of time. I really like the plan as I wanted it to be invested for at-least 10-12 years so that I can get the optimum profit out of the same. Thank you policybazaar.
Sonu
Bhilaad, September 01, 2020
Investment plan
I have taken the pension plan from the policybazaar and it is one of the best investment plan. It has the long term effect on the person and I can easily invest and can get the better returns in the future. Thank you policybazaar.
Ananya
Islampur, May 25, 2020
Online process
The whole process of buying the policy is on online basis. It was quite easy as I searched on website and explored various plans. I found it good and bought one.
Ashish
Sarsawa, May 24, 2020
Convenience
I am very impressed with the services of policybazaar. They are really quick. Also, it is very convenient to buy the investment plan.
Kushal
East Midnapore, May 23, 2020
Long term gains
It is the process of long term gain and to sustain our future from certain hurdles. As the things have become expensive and we should save money. So, these investments plans helps in saving money.
Divyanshu
Hagaribommanahalli, May 22, 2020
Great support system
I love the services of policybazaar and the employees working there. It’s really nice that they gave me a lot many choices related to the investment plans. Unique way to invest.
Vijay
Mansur, May 21, 2020
Choices are given
While you are planning to take the SIP from policybazaar. You can have a lot many choices to choose out of different investment plans. I got the best one and I like it.
Manish
R.g.pur, May 11, 2020
A call away
I am happy that I bought my SIP plan from policybazaar. As they are just a call away. I was having a problem with my SIP and they resolved in few minutes.
Kishan
Sialhawk, May 10, 2020
Flexibility
I can see that SIP are flexible in nature. We can choose any kind of Mutual fund and also the amount which we have to invest. Quite simple.
Jatin
Vizianagaram, May 10, 2020
Helps in financial way
It helps me in dealing with financial things. As nowadays everything has become too costly. But with the help of SIP I can manage with my finances and can save money every month for a long term investment.
Vijay
Dabhoda, May 09, 2020
Good customer service
The customer service team of policybazaar is very nice. I was in a doubt before buying a SIP plan, but with the help of them I got to know about a best plan which is according to my budget.
Rakesh
Adimali, May 07, 2020
Best Returns
I recently purchased the SIP plan for me and for my wife. I found it totally good and apt for us. It is a long term investments with great number of benefits. Thank you team policybazaar for such nice plan.
Tripti
Agalpur, April 08, 2020
One stop and best plans
I got the SIP plan with the help of policybazaar. It is one stop solution. With great returns and monthly plan I am very satisfied. If so ever I need help from the customer care team they are available to help me.
Madhuban
Zotlang, April 06, 2020
Great Returns
It is a great source of return. I have started doing it from last 2 years and I am feeling relaxed that after a certain age I would be having a good amount of money with better returns.
Mustafir
Agra, April 03, 2020
Good policy
SIP plan is quite trending and useful nowadays. It has reflected a great impact on our society. As people are more concern about future planning and saving the money. Even the SIP plans gives us good returns after a certain period of time.
Varun
Adivada, March 31, 2020
Good customer care
The customer care team is quite helpful and nice. I got full and accurate information from them. They are not so disturbing. They have a good knowledge related to the product.
Vaibhav
Ahmedpur, March 27, 2020
Easy to get plan
It is easy to get the plan. I just visited the website of policybazaar. And I got various plans. Then I called the customer care team and they explained me about each and every plan. I chose the best one.
Subhas
Ahmedpur, March 23, 2020
Good plans
I visited the website of policybazaar and found good number of plans for future savings and investments. SIP is very important for everyone who wants a good satisfaction and more savings in his or her life. I would love to recommend all these plans to my friends and family.
Keshavkant
Jatga, January 20, 2020
Reach Your Goals
After a certain period of time you can reach your goal. I have seen that higher you invest there will be higher risk but you can earn well. But lower the investment low risk and low returns. Well, I have started with a less amount so that I can check and analyse. But gradually after sometime I will get a good amount. Thanks policybazaar.
Jaikant
Pathankot, January 13, 2020
Earn Money on your Investment
It is a good way to invest money and you can earn benefits and profits in your money only. A convenient way to invest and utilise your amount. Initially I found it little bit confusing but after a while everything is being okay. People who are planning in a long term investments can do such things.
Sailja
Satlasana, January 08, 2020
Systematic Investment Plan
It is a good plan. My friend recommended me to get this plan so that I can invest some amount of money into this. Ultimately I will gain benefits after a certain period of time. It is a good plan by policybazaar and I would recommend to everyone.
Zakir
Machantola, December 31, 2019
Systematic way for making money
I have gone through the plans of policybazaar. And found that it is a systematic way to invest and gain money. The whole process is simple and you can check on time to time basis regarding your investments.
Vishal
Ara, December 26, 2019
Good Returns In Long Term
I feel that while investing into this plan I have gained knowledge regarding the same. Also, after a certain good investment I will get the good returns. Though it is long term process but surely will be good for my future. Thank you team policybazaar.
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