A question comes to the mind of mutual fund investors whether to invest through SIP or do Lump-Sum investing.
SIP
SIP is a systematic investment plan that means investing a specific amount regularly every month or every quarter, just like RD (Recurring Deposit).
In RD, people put a fixed amount every day or every week, on the same side, through SIP, a fixed amount can be invested in mutual funds every month or every quarter.
Due to which you will get the average returns for your investment period.
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For example, if you have started a monthly SIP of ₹ 1000 in an equity mutual fund scheme and on the 1st of every month you invest ₹ 1000 in that mutual fund scheme, then on the 1st of January, the NAV (Net Assets Value) of that mutual fund scheme on that you will get units.
Then on the 1st of February, you will get units on the NAV of that mutual fund scheme.
So in this way, on the 1st of every month, you will get units on the NAV of that mutual fund scheme.
So when the market falls a lot for a few months, then you will get units at a lower NAV, whereas if the market rises a lot for a few months, you will get units at a higher NAV, so your return will be averaged.
Lump-Sum
Lump-sum investing means investing your money all at once. Lump-Sum Investing can sometimes be a bit risky than SIP because in Lump-Sum you invest your money all at once. At which level you are investing, is important.
You can also earn good returns from SIP with Lump-Sum Investing but for that, you should have a good understanding of the stock market and valuation.
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A huge advantage of SIP as compared to Lump-Sum investing is that in SIP you invest a specific amount every month and this amount is auto-debited i.e. automatically deducted from your bank account.
And if you have invested in the chosen mutual fund scheme, then if you have started SIP you must have saved the amount of SIP every month, which will save you every month and this is the reason why people start RD.
Returns are very less in RD, but if they are saved in RD, then through SIP also people get savings every month and at the same time they can get good returns.
So if you have good knowledge of the stock market and valuation then only you go towards Lump-Sum investing or if you are taking care of very long-term like 10 to 20 years then you can do Lump-Sum investing.
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Because for such very long-term investments, lump-sum investment usually gives good returns from SIP.
If you have enough money to invest in mutual funds, then it is not advisable to hold off on SIP investments for a long time.
On the other hand, if you want to save or invest for a period of less than 5 to 6 years, then SIP will also be good for you.
Many investors do both SIP and Lump-Sum.
If they have a SIP in any mutual fund scheme and the market falls heavily, then these investors make some lump-sum investments at such a time so that they can take advantage of the low valuation of the stocks.
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Whether it is SIP or Lump-Sum, choosing the right mutual fund scheme is very important because if you have chosen a bad mutual fund scheme that is giving bad returns, then you do SIP or Lump-Sum your returns will be bad.
So do a complete analysis before choosing a mutual fund scheme.
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SIP is a systematic investment plan that means investing a specific amount regularly every month or every quarter, just like RD (Recurring Deposit).
Lump-sum investing means investing your money all at once. Lump-Sum Investing can sometimes be a bit risky than SIP because in Lump-Sum you invest your money all at once. At which level you are investing, is important.