SIP vs Lump sum
SIP and lump sum investments are two different approaches to investing in mutual funds. Both approaches have their own advantages and disadvantages. As an investor one can make a decision to go with either of the approaches after deciding their financial goals, risk appetite, and investment horizon. The following parameters are to consider for such decision-making:
1. Investment Frequency: If a person wants to invest the amount slowly and steadily as per convenience then SIP turns out to be the solution in this case, but on the other hand, lump-sum investment involves investing a large sum of money in one go.
2. Risk Management: SIP reduces the risk associated with market volatility as the investments under this are spread out over time. however, lump sum investments come with high market risk because of huge money involvement and the impact of market fluctuations.
3. Experience: Lump sum investment requires experience in the market and appropriate market timing to maximize the return, whereas SIP investments are suitable for a new investor with no or less market experience.
4. Flexibility: SIP investments offer greater flexibility in terms of investment amount and duration, allowing investors to increase or decrease the investment amount or pause the investment as per their financial situation. But, lump sum investments are one-time investments that offer less flexibility.
5. Returns: SIP investments generally provide higher returns over the long-term due to the power of compounding. Whereas, lump sum investments may not always provide the same level of returns as it is associated with a high risk of market fluctuations.
Although the decision to in either of the two approaches ultimately depends on investors, experts generally recommend investing through SIPs rather than a lump sum.
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