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SIP Vs Lumpsum Investing - Which One Should You Opt For
The blog compares SIP (Systematic Investment Plan) and lump sum investment methods, explaining their pros and cons, and provides guidance on choosing between them based on various factors.
Synopsis:
SIP involves regular investments, making it easier for beginners and benefiting from rupee cost averaging.
A lump sum investment is a one-time payment that experienced investors prefer during bearish markets.
SIP has a low entry barrier, allowing investments as low as ₹500, while a lump sum requires at least ₹1000.
Overview
One of every investor's many questions is whether they should invest through SIP or lumpsum. A lump sum investment is one in which you pay the entire amount at once, whereas an SIP requires you to make payments at regular intervals.
Both these investment strategies have pros and cons. Most investors prefer lumpsum investments when they have a cash windfall. In contrast, SIPs are better suited for beginners because they benefit you in both bearish and bullish markets through rupee cost averaging.
Let us learn more about these investment methods and understand the key factors that set them apart.
What are the differences between SIP and lumpsum investments?
Some of the major differences between SIP and lumpsum investments are given below.
| SIP Investment | Lumpsum Investment |
|---|---|
| With SIP investments, you can enter the market during different market cycles as the investment is recurring. So, you do not have to time the market. | Lumpsum investments are one-time investments. You need to know the market cycles or trends to identify the right time to invest a lumpsum amount. This investment is generally opted for when the market is bearish. |
| SIP investments have a low barrier of entry. This also makes them beginner-friendly. You can invest as low as ₹500 with SIP | Lumpsum investment, which experienced investors prefer with a high-risk tolerance. You need to invest at least ₹1000 for lumpsum investments. |
| SIP involves buying Mutual Fund units during different market cycles, so the unit cost is averaged over the investment tenure. | Lumpsum investment is a one-time transaction. The price of the Mutual Fund units will depend on the market cycle. The cost per unit, therefore, is not averaged out. |
| With SIP investments, you can choose to reinvest the interest earned. Combined with newer instalments, the power of compounding helps generate greater returns. | While you can reinvest the interest earned and benefit from compounding, the principal amount remains the same. |
| SIP instils a habit of saving frequently. | Lumpsum investment allows you to save money and eliminates the possibility of overspending. |
What are the factors you should consider before investing?
Before debating SIP vs. lump sum, you should consider these factors.
Investment Amount: A lump sum investment can be a good choice if you have a considerable amount at your disposal. However, SIP investment is more suited if you have less on hand and are trying to integrate a savings habit.
Market Timing: A lump sum investment will generate higher returns when the market is low. But, if identifying market cycles is still a challenge, then a SIP will help distribute the risk.
Fund Type: Market volatility plays a crucial role in returns when it comes to specific fund categories. Hence, you must consider the type of fund—equity, debt, or hybrid—before investing.
On a final note:
Selecting an investment avenue must depend on your short-term and long-term goals. Some of the crucial factors which you need to consider are: Monthly income, Financial stability, Investment goals, and Risk-appetite.
Having a Demat Account opens many avenues for investing in the stock market. HDFC Bank offers a hassle-free way to open this account online.
To know more or to open a Demat Account with HDFC Bank, click here.
Click here to read more about investing in SIP with a Demat Account.
*Terms and conditions apply. This is an information communication from HDFC Bank and should not be considered as a suggestion for investment. Investments in the securities market are subject to market risks; read all the related documents carefully before investing.
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A Credit Card is a financial instrument or facility provided by banks. It comes with a predetermined credit limit. You can utilise this credit limit to make cashless offline and online payments for products and services using your Credit Cards.
A Credit Card is a financial instrument or facility provided by banks. It comes with a predetermined credit limit. You can utilise this credit limit to make cashless offline and online payments for products and services using your Credit Cards.
A Credit Card is a financial instrument or facility provided by banks. It comes with a predetermined credit limit. You can utilise this credit limit to make cashless offline and online payments for products and services using your Credit Cards.
A Credit Card is a financial instrument or facility provided by banks. It comes with a predetermined credit limit. You can utilise this credit limit to make cashless offline and online payments for products and services using your Credit Cards.
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