Worried about losses? Invest in the SIPs for good!

Your choice of a Mutual Fund Scheme does not define the mode of investment i.e. Systematic Investment Plan (SIP) or lump sum. The mode of investment is an investor’s choice.

It is also dependent on the cash in hand. Also, even though lump sum may work wonders if the market is growing; when the markets are not soaring a lump sum investment can be relatively riskier.

SIP, here, helps in spreading out your risks over a period of time. Having said that, if you believe you can gauge the market condition effectively and are willing to take the risk, a lump sum investment might just be in your favour. Hence, it is a relative decision.

However, if the cash in hand is not much and the decision is for a longer run, SIP does have the below benefits over lumpsum investing-

Rupee Cost Averaging-

SIP is the best way to average out your risks by investing in chunks. For e.g., Assume that you invest Rs 5000 every month in a Mutual Fund Scheme. If Jan’19 fund NAV was Rs 50, you will end up purchasing 100 units of it. And if Apr’19 fund NAV was Rs 25, you will end up buying 200 units, and get more units for the same cost. This method of spreading your cost over time and averaging it out is called Rupee Cost Averaging. This, to some extent, mitigates the risk of investing at the wrong time.

Power of compounding-

Mutual Fund returns are calculated as per compound interest. SIP allows you to begin with smaller investments, as low as Rs. 500 per month. This, in turn, allows you to start early and starting early can give you the maximum benefit of compounding. A lump sum investment, on the other hand, is dependent on a bulk of the money coming in.

A disciplined approach to investing-

SIP inculcates discipline in our lives when it comes to saving money. We need not wait for the yearly bonus or a deal to come through for the SIP to be active and running. Smaller amounts invested over time, moreover, do not tend to hurt the pockets as much either.

Depending on your earnings and financial goals, you may decide on the one mode that suits you better. You may also contact your financial advisor for further information.