Lump Sum vs SIP
We often face a dilemma on how and where to invest our money. Does our investment help us save tax? The most important factor to keep in mind while investing is that you should always consider your financial profile. This profile includes your income, expenses, capacity for taking risk, and financial goals.
When investing to save taxes
Equity Linked Savings Scheme (ELSS) can help you save taxes under Section 80C of the Income Tax Act. Keeping in mind your affordability to invest, you can zero-in on one from the Lump sum vs SIP (Systematic Investment plan) debate.
Lump Sum Investments
A lump sum investment is a one-time investment. If you have a higher disposable income at hand and want to take risks, you can choose this mode of investment. For instance, you can invest INR 1,20,000 lakh in a fund at one go.
If you don’t wish to invest all your money at one time, you can select periodic investments via SIP route. Here, building on the previous example, the same INR 1,20,000 lakh can be invested over 12 months at INR 10,000 instead. Additionally, by investing through 12 SIPs, you can also get the benefit of rupee cost averaging.
So what’s easier? Lump sum vs SIP?
When investing for better returns
Since equity mutual funds are high return investment products, everything depends on the stock market. When the market is in favourable conditions, lump sum investments will give you better returns, but during an unfavourable situation, SIPs average your risk and returns. Sign-up on FundzPark to avail of such benefits.
‘How would I know what investment suits me?’
Firstly, you should look at your risk appetite. Are you willing to bear the risks associated with a lump sum investment? Do you have enough disposable income at hand to help you in case of an unfortunate event? Are you always willing to invest in one shot? Most importantly, is it important to choose one?
Yes, you can invest in mutual funds using the lump sum route even while continuing with your SIPs. In case you have a windfall, or you get a bonus, you can make a lump sum investment over-and-above your regular SIPs.
Advantages of SIPs over Lump sum investment
- Suits first time investors:
The stock market always fluctuates. With SIPs, you have to invest a smaller amount of money for a while, so, in case of market volatility, only some part of your investment would be affected.
- Rupee cost averaging:
SIPs help you make the most of both the rising and falling market conditions. The investment allows you to reduce the average cost of your investment, thereby lowering the risk of your investment. This technique is called rupee cost averaging.
- Power of Compounding:
You can regularly increase your investment by a fixed amount through SIP. The increase in investment is possible through the power of compounding, which helps you get a higher return on your investments.
To know more about SIPs and how it can help you invest mindfully and earn higher returns on your investment, sign-up on www.fundzpark.com.