SIP or Lumpsum? Know The Right Way

Awareness of Investing in Mutual Funds is increasing day by day we have seen phenomenal growth in the Mutual Fund Industry for the last 5 years from the Assets of Rs.13 Lakh Crores in September 2015 to Rs.27 Lakh Crores in September 2020.

Investors are preferring to invest in Mutual Funds with the expectation of better returns as compared to other products available for investment.

Indeed Mutual Funds have performed much better in previous years we can see data for the past 20 years, and they will continue to deliver better returns for the next 20 years too, or even more.

For many of the beginner investors who are new to mutual funds and even many veteran investors often have this query that whether to invest via SIP or Lumpsum? What is the Right Way?

The Right WAY

Investing in Mutual Funds is all about the right asset allocation, if you are not allocating your money in the right asset class at the right time then you will be disappointed with your overall mutual fund investment experience.

Now, What I mean by, allocating your money in the right asset class at the right time is that you have to allocate more money when a particular asset is undervalued. Also, you have to decrease your allocation from assets that are overvalued.

For example, You have to invest more in equities when the price, as well as valuations, are cheap. Invest more in debt funds when the price and valuation of equities are skyrocketing.

Generally, investors do vice versa they invest in equity when equity prices and valuation are rising with a fear of missing out. And they decrease their allocation in equity when prices fall with a fear of losing more. This makes the whole investment process – A worthless experience for them!

SIP or Lumpsum?

We will now understand both methods of investing and which method is the right way of investing for Whom?

SIP is a Systematic Investment Plan – a method to invest regularly in mutual funds. This is the right way of investing for investors who have regular cashflow income and want to invest that money in a regular manner to create a corpus for their financial goals and earning better returns from mutual funds.

It is advisable on a general note that if you are aggressive in nature and wants to invest regularly from your income to earn better returns prefer equity mutual funds as they will provide you rupee cost average benefit – in short, you will get more units with the amount you invest when prices fall. In long run, your average cost will keep decreasing resulting in more profits.

Lumpsum is a single shot one-time investment in mutual funds. This is the right way of investing for investors who have a decent surplus and want to allocate that money for better returns.

For investors who want to invest a lump sum, it is advisable to follow an asset allocation strategy while investing your money. Say, you have a time horizon of 5 years and beyond plus you are aggressive in nature even then you should not invest more in equity when valuations are high.

By the time I’m writing this article for you, I don’t recommend my investors to invest more than 35% in equity as of date.

Note: This allocation changes every month for fresh lumpsum investments.

I regularly share my asset allocation on my Twitter handle within Market Closing Snapshot. Click here to view.

Asset allocation is very important for lumpsum investors and it is also important for SIP investors but for them only after a decent corpus is accumulated.

So, know what type of investor you are and the surplus you have then chose your right way of investing.

Click here to Invest with us & Enjoy our Mutual Fund Automated Rebalancing System where we automatically rebalance your Mutual Fund Portfolios. or Click here to have a one-on-one meeting with me.

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