Lump sum investment or SIP: The new generation or say Millennials in India are excited about investing in the initial days to fulfill their dreams. Due to the expansion of the Internet and awareness of the market, the number of new investors in the capital market is increasing rapidly. Most Indians are making mutual funds a means of initial investment. In this, he is investing in both Systematic Investment Plan (SIP) and lump sum. Despite this, they need proper counseling for a better portfolio. If the investor is not sure about his mutual fund investment options, it may be difficult to take a decision due to the options available in the market.
There is always a question for new and beginner investors as to which tool should start investing. Many investors are confused as to whether it is better to invest outright or to opt for SIP? The reality is that both serve many goals. Therefore, the option of investment should be decided by keeping the goals in mind.
For whom is lump sum investment better?
Investors who are not sure about monthly, quarterly, half-yearly or annual contributions, usually opt for a one-time investment. This type of investment requires a large amount of money, so that the returns from the market can also be good.
The lump sum option is usually chosen by investors who want to avoid risk. Because they believe that they will get maximum returns from the market. There should be a level of knowledge to understand the dynamics of the system, because when the stock market is in a period of decline, people prefer to put their lump sum money in mutual funds. It is considered an ideal option for those investors who earn high but irregular income. Business and consultancy management professionals often get paid in one go in terms of fees and contracts. Whereas, this is not the case in SIP. As a result, outright investments are more suitable for such unregulated bicycles.
Why choose SIP?
In case of SIP, incremental investment process runs, which takes into account the average capacity of the investor. Individuals with a monthly income can decide to contribute to the SIP in a regular fixed period. It can start from a base amount of 500 rupees and can be up to thousands of rupees on daily, weekly and monthly basis. This process is like choosing a banking service, where people know how much they are contributing to the service. They join the scheme for a predetermined period.
For the first time, most of the investors are young professionals and graduate students. SIP is a great option for them. Their expenses are very basic and investment is low. In addition, they can set a target-oriented timeframe for investment without worrying about market fluctuations.
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Things to keep in mind before investing
- The investor should start the investment by setting a target. For example, it depends on how much money an investor can invest, how his monthly income is, how much his risk-taking ability is and how much he is able to understand the dynamics of the market.
- For individuals with a steady income, it is believed that SIP plays an important role in market fluctuations. As an investor, little attention is required. This is a better option for beginners with regular income. Because they can choose to discontinue it anytime.
- In addition, banks are helping their customers speed up the process through digital KYC and other means, and through your introduction on the mobile app, it is possible to invest systematically based on the plan you have chosen.
- On the other hand, lump-sum investments during market lows can significantly affect future returns and the risk factor plays a major role. Whether it is SIP or lump sum money, diversification in the portfolio is helpful in reducing the risk.