A look at lump sum vs SIP investments - Jinz Haiggh Blog

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A look at lump sum vs SIP investments

In India, there are two broad categories of investments, i.e. lump sum investment and systematic investment plans or SIP. Lump sum investment basically means investing your surplus funds into a scheme all at once while SIP is a recurring form of investing funds into a scheme.

When does lump sum investment come handy?

One generally considers investing lump sum when he has a surplus amount of funds and is sure about the investment scheme he is investing in. These investments allow the investor to purchase the number of units he wants at one go. This method is a favourite to build additional wealth and positive liquidity. For lump sum investment, it is important to invest at the right time, so that you can buy at low and get the benefit of an increase in prices.

Benefits of Lump Sum investment

If you are using a lump sum investment calculator to determine your investment, you would be thinking about the benefits of the same. Read on to see what advantages lump sum investment brings to your wealth creation goals:  
  • Investment of big amount
When a person receives a large amount of money; probably from the sale of property/ asset, pension, bank return, etc., he is looking for a smarter way to invest his money. That’s when lump sum investments come into play. By investing these funds into stocks or businesses, one makes sure his funds are secure and gets timely returns from them
  • Ideal for long-term
A lump sum investment is a good idea for someone who is looking at investing funds for the long run. They usually have a promising future if invested smartly into reputed firms. They guarantee a good amount of returns periodically too.
  • Convenient one-time payment
Once you put your funds into a business, you’re set for the future as you don’t have to worry about monthly payments. Just one transaction and you’re all set. This is one of the biggest benefits of a lump sum investment.

When does SIP investment come handy?

SIP, on the other hand, means investing your funds from time to time in smaller amounts. This type of investment is generally advised for first-time investors or people having lower surplus funds. It is always advisable to invest in SIPs if you’re new to the world of investments

Under Systematic Investment Plans (SIPs), you can set aside a fixed amount to be deducted directly from your bank account at a pre-determined time interval (e.g. monthly or yearly). The interesting thing here is that it doesn’t factor in the timing of the market and that investment continues to happen irrespective of whether the market is up or down.

Benefits of SIP approach to investment
  • Investment discipline
Nothing teaches investors discipline like SIPs. It helps investors to be organized and also teaches them to save every month, so they can put those funds into their SIPs. This ensures that they are saving up to put their funds into SIPs
  • Alleviation of risk
Before investing every month, one gets the chance to see if his investments are bringing him reasonable returns or not. This ensures lowering of the risk.
  • Flexibility
One of the key advantages of SIP is its flexibility. It can be customized as per the investor’s needs. The amount to be deducted every month can also be customized.
  • Hassle free
Since money is to be invested periodically, it becomes hassle-free for the investor as the amount is deducted as per his convenience.

These were some of the basic differences between lump sum and SIP investment. Before using a lump sum investment calculator or going for SIP investment, it is vital to consider all these points and make a call accordingly.
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