5 Ways SIPs Edge Out Lump Sum Investments

  Author: Kundan Kishore

It is a typical investor’s dilemma. Should you invest a lump sum or invest small amounts regularly? This is more pronounced for mutual fund investors who can also avail the facility of systematic investment plans (SIPs) where regular investments can be made, typically every month. It is here that investors need to know about the five distinct advantages that SIPs provide.

You don’t have to assess market conditions In an SIP you invest a fixed sum regularly irrespective of market conditions. However, in case of lump sum investments, you have to figure out a good time to invest in order to maximise your gains. Needless to say, you might get into trouble if your timing is wrong.

Freedom from monitoring markets Unlike lump sum investments, where you need to track the markets regularly, in SIPs, you do not need to continuously follow the fortunes of the market. This makes ideal for individual and small investors who typically don’t have the time or the wherewithal to follow the fortunes of the market.

Allows small investments In SIPs, you can invest small amounts regularly, often as small as Rs 500, whereas in case of lump sum investments, you invest a big amount at one go.

Don’t need right timing of investment In lump sum investments, you need to get the timing of your investments right. In SIPs, the average cost of buying a unit evens out over time, regardless of market conditions. This ends up enhancing your gains.

Helps regularly tap investment opportunities In SIPs, you do not miss out on any opportunities in the market since you invest regularly. In case of lump sum investments, you face the risk of postponing your investments or making an exit from your investments in fear of a fall in the markets.