SIP vs Lump Sum Investments

Are you looking to invest money periodically or one-time in bulk? Make the right choice with all the necessary details about both the investment options.

INVEST
5 mins
20 March 2023

Investing involves making wise decisions and one needs to be careful in choosing one. Though there are several investment opportunities available, investing in mutual funds can prove to be beneficial.

An investor can choose to spread out their mutual fund investment over time using a Systematic Investment Plan or known as SIP. They can also make a one-time investment in mutual funds using a lump sum payment. One's investment portfolio may change depending on the form of investment.

Mutual funds are a great way to invest your money and grow your wealth. There are two ways to invest in mutual funds - Systematic Investment Plan (SIP) and lump sum investments. Both SIP and lump sum investments have their pros and cons, and it is important to understand the differences between the two before investing your hard-earned money. Let us explore the key differences between SIP and lump sum payment, and help you choose the best investment option for your needs.

What is SIP?

SIP stands for Systematic Investment Plan. It is a popular investment plan that allows investors to invest a fixed amount of money in a mutual fund on a regular basis. This can be a great way to build wealth over time, especially for young investors who have a long-time horizon.

What is Lump Sum?

A lumpsum investment is a one-time payment made in full at the beginning of an investment period. It is a single, large payment made upfront, without any subsequent payments. It can be made for various purposes, including investments, insurance premiums, retirement plans, and more. Fixed deposits are also generally booked by making a lump sum investment.

Difference between SIP and lump sum investments

A Systematic Investment Plan is a way of investing in mutual funds where you invest a fixed amount of money at regular intervals, typically monthly. Lump sum investment, on the other hand, involves investing a large sum of money at one time. Here are the key differences between lump sum vs SIP mutual funds:

  • Investment amount: In SIP, you invest a fixed amount of money at regular intervals, whereas in lump sum investment, you invest a large sum of money in one go.
  • Market timing: In lump sum investment, you invest a large sum of money at one time, which means your investment is subject to market fluctuations. In SIP, you invest a fixed amount of money at regular intervals, which helps you average out the market fluctuations.
  • Cost averaging: SIP allows you to benefit from cost averaging. When the market is down, you get more units for the same amount of money, and when the market is up, you get fewer units for the same amount of money. This helps you average out the cost of your investment over time.
  • Flexibility: SIP offers more flexibility than lump sum investment. You can start investing with a small amount of money and increase your investment amount over time. Lump sum investment requires a large sum of money upfront.
  • Time horizon: SIP is a good option for long-term investment goals, whereas lump sum investment is suitable for short-term investment goals.

Choosing between SIP & lump sum investment

When it comes to choosing between SIP and lump sum investment, there are a few factors to consider:

  • Investment amount: If you have a large sum of money and are looking to invest it all at once, the lump sum investment may be the way to go. However, if you are just starting and want to invest a small amount of money, SIP may be the better option.
  • Time horizon: For long-term, SIP is a good option, as it allows you to benefit from cost averaging. If you are investing for the short term, the lump sum investment may be more suitable.
  • Risk tolerance: For risk-averse investors, SIP may be a better option, as it helps you average out market fluctuations. If you are comfortable with market fluctuations and want to take advantage of market highs, the lump sum investment may be more suitable.
  • Investment goals: Your investment goals play a crucial role in choosing the investment option. For a specific short-term goal, such as saving for a down payment on a house, the lump sum investment may be more suitable. However, for the long-term, such as retirement, SIP may be a better option.

Table showing differences between lump sum and SIP:

Criteria

SIP

Lump sum

Investment amount

Fixed amount at regular intervals

A large sum of money at one time

Market timing

Averages out market fluctuations

Subject to market fluctuations

Cost averaging

Benefits from cost averaging

Does not benefit from cost averaging

Flexibility

More flexible

Less flexible

Time horizon

Suitable for long-term investment goals

Suitable for short-term investment goals

Risk tolerance

Suitable for risk-averse investors

Suitable for investors comfortable with market fluctuations

Investment goals

Suitable for long-term investment goals

Suitable for short-term investment goals


In conclusion, both SIP and lump sum mutual funds have their pros and cons, however, SIP allows you to benefit from cost averaging, offers more flexibility, and is a good option for long-term investment goals. Lump sum investment, on the other hand, allows you to invest a large sum of money at one time, is suitable for short-term investment goals, and allows you to take advantage of market highs. You can use the SIP calculator to determine which investment option you should opt for basis your future goals. Armed with this information you can now choose between SIP or lump sum, which is a better option for you.

Disclaimer

Bajaj Finance Limited (“BFL”) is a Non-Banking Financial Company carrying the business of acceptance of deposits, providing lending solutions to Retail & Corporate customers, and is a Corporate agent of various insurance Companies. BFL is also registered with the Association of Mutual Funds in India (“AMFI”) as a distributor of third party Mutual Funds (shortly referred as ‘Mutual Funds’).

BFL does NOT:

(i) provide investment advisory services in any manner or form;

(ii) perform risk profiling of the investor;

(iii) carry customized/personalized suitability assessment;

(iv) carry independent research or analysis, including on any Mutual Fund schemes or other investments; and provide any guarantee of return on investment.


In addition to displaying the Mutual fund products of Asset Management Companies, some general information is sourced from third parties, is also displayed on ‘As-is’ basis, which should NOT be construed as any solicitation or attempt to effect transactions in securities or the rendering any investment advice. Mutual Funds are subject to market risks, including loss of principal amount and Investor should read all Scheme /Offer related documents carefully. The NAV of units issued under the Schemes of mutual funds can go up or down depending on the factors and forces affecting capital markets and may also be affected by changes in the general level of interest rates. The NAV of the units issued under the scheme may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities. The NAV will inter-alia be exposed to Price / Interest Rate Risk and Credit Risk. Past performance of any scheme of the Mutual fund do not indicate the future performance of the Schemes of the Mutual Fund. BFL shall not be responsible or liable for any loss or shortfall incurred by the investors. There may be other / better alternatives to the investment avenues displayed by BFL. Hence, the final investment decision shall at all times exclusively remain with the investor alone and BFL shall not be liable or responsible for any consequences thereof.

Bajaj Finserv Direct Limited, (“BFDL”), a wholly owned subsidiary of Bajaj Finserv Limited (is a Registered with SEBI as an Investment Advisor with Registration no. INA000016083). BFDL enables resident Indian customers to directly invest in third party mutual funds through its online platform. BFDL entered into a referral arrangement with BFL, whereunder, BFL may, without risk or responsibility on its part, refer the resident Indian customers who are interested in placing their investments in Direct Mutual Funds through BFDL online platform. Investment by a person residing outside the territorial jurisdiction of India is not acceptable nor permitted.

Disclaimer on Risk-O-Meter:
Investors are advised before investing to evaluate a scheme not only on the basis of the Product labeling (including the Riskometer) but also on other quantitative and qualitative factors such as performance, portfolio, fund managers, asset manager, etc. and shall also consult their financial advisers, if they are unsure about the suitability of the scheme before investing

Frequently asked questions

Is lump sum investment good?

For investors with a long-term investment horizon of five to seven years, lump sum investing offers respectable returns. It frequently could assist in achieving particular monetary objectives, such as investing for a child's education fund or a retirement fund. It necessitates a one-time, substantial capital outflow.

Which is more beneficial lumpsum or SIP?

The state of the stock market affects the response to this query. While investing in mutual funds lump sum gives substantially higher returns during bull markets, investing in mutual funds via a SIP typically offers superior returns during bear markets.