Invest in mutual funds
The number of people investing in mutual funds is increasing rapidly every day. Investors are considering mutual funds as a safe and profitable option to avoid stock market risks. Currently, there are two main ways to invest in mutual funds: the first is SIP (Systematic Investment Plan) and the second is a lump sum i.e. lump sum investment. Both methods have different advantages and in many ways it also depends on the financial situation of the investor. Let’s understand with some examples today which is the best option.
What is the method to invest in SIP?
Investors invest a fixed amount every month in SIP. This amount can range from Rs 200 to Rs 10,000 or more. This type of plan is beneficial for investors who cannot invest a lump sum. This method of small investments gives them the opportunity to share in the benefits of mutual funds. Furthermore, through SIP investors can also reduce the impact of market fluctuations as investments are made at different levels every month, thus the average cost remains balanced. What in market language is called NAV, that is, net asset value.
Why is lump sum better?
If the investor has a large amount available, he can choose to invest in a lump sum, which increases his chances of getting better returns. For example, lump sum investment under the Infrastructure Fund Scheme of LIC Mutual Fund has given an average annual interest of 29.58% in the last five years. A global investment of Rs 6 lakh increases to Rs 21.92 lakh in 5 years. In contrast, an investment of Rs 6 lakh through SIP with an average interest rate of 39.30% reached Rs 18.65 lakh in the same period.
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Earn more returns on lump sum payment
According to the data of this LIC scheme, the lump sum investment has given higher returns than the SIP. There was an additional profit of Rs 3.27 lakh from lump sum investment in 5 years, which shows that lump sum investment can be more profitable. But it is worth noting that this profit also carries market risk, so investors should make the decision taking into account their financial goals, risk appetite and investment period.
Understand the subtle difference between the two here.
Both methods of investing in mutual funds have their own specialties. SIP helps in generating long-term wealth with low risk and regular investment habit, while lump sum investment can be better for higher returns. It is very important to understand your financial goals and risk appetite before making any type of investment.
