Lump Sum & SIP: What Suits Your Purpose, and When?

 

Investors can deploy their funds in the market in two ways. It can be a lump sum or through SIPs. Both these methods are equally effective under different circumstances. This TM Learn will help investors in determining what's best for them.

For beginners, investing can be a tricky business, with risk management being a crucial part of it. The growth prospects of your investments depend a lot on how you are deploying your money.

Investments can be made in two ways:

1) Investing a sizable chunk at one go, commonly referred to as lump sum. Or,

2) Break down your investments into smaller sizes and allocate them towards investment at periodical intervals. Like every week, month, or quarter, known as the SIP style of investing.

Now, let’s decode both the styles one by one to understand their unique characteristics:

1) Lump Sum Investment

Lump sum or one-time investing implies that investors invest their capital in one shot and top up the investment when necessary.

Advantages of Lump Sum Investing

This method is generally suitable for experienced or high-net-worth investors. They must possess a high-risk tolerance towards market fluctuations.

Lump Sum Investing allows the investors to utilise the market momentum in their favour. This style is generally convenient for individuals who have a large amount to spare for their investments.

The chances of making gains on lump sum investments are high when the market has gone through a volatile period and it is preparing for its way up.

It is also well suited to meet financial goals. Besides, it is an ideal wealth-creating instrument over the long term. Read More about lump sum investment