SIP vs Lumpsum Investment
Simple and easy to understand - side by side comparison to help you figure out which is better!.
This article is written for absolute beginners who are just starting out in the investment world when it comes to investment in securities. Some links to studies are mentioned if you want to know more about the difference in returns. In general, we recommend going via the SIP route because it’s the most practical way for most of us who have a steady monthly income. Set aside an amount and invest it on the first week of every month. If you have a large amount of cash waiting to be deployed in the equity market, then it’s more likely better to invest as soon as possible instead of waiting for a dip.
If you're going ahead with SIP route, use this sip calculator to help you project returns for your goals or the retirement portfolio. Here is a side by side comparison to give you a rough idea - but you should know that 'time in the market is better than timing the market'. Set aside an amount for every month(early, not at the end of the month) and start investing today!
| SIP (Systematic Investment Plan) | Lumpsum Investment | |
|---|---|---|
| Beginner Friendly | Yes. Most fund houses and mutual fund aggregators support automatic deduction of monthly installment via the bank mandate route. That makes it very easy for noobs. Once the SIP is setup, nothing is required. | Not that difficult but certainly not very easy like SIP. You need to carefully research and pick the mutual fund before going lump sum as there is less room for any error. |
| Flexibility | Very flexible. You can start as low as 1000 per month and you can easily switch to higher amount(depending the limit set by bank mandate) or to another fund as required. | There are no limits / restrictions in this either but if you already invested all the amount in one go, you can not switch to another fund easily. You will have to withdraw first and move funds back to another fund (unless the fund house is same in both the cases) while considering the tax implications of such a move. |
| Volatility & Risk | Funds are invested at regular intervals (weekly/monthly etc) so the investor benefits from the dollar cost averaging. It somewhat reduces the timing risk associated with the investment and the portfolio appears less volatile which is good for a beginner investor. It also increases the likelihood that investors will continue with the funds in the market and enjoy better returns from the long term compounding effect. | Because the funds are invested at one go - the portfolio might appear more volatile if the market fluctuates too much right after the investment. The beginners may panic seeing the portfolio in red however it doesn’t really matter if the amount is invested for the long term. It’s better to invest now than keep waiting for the right time in the future. Time in the market is more important than timing the market. |
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