SIP Vs Lumpsum Investing - Which One Should You Opt For

One of the many questions that every investor has is whether they should invest through SIP or lumpsum. A lumpsum investment is one in which you pay the entire amount at once, whereas an SIP requires you to make payments at regular intervals.

Both these investment strategies have pros and cons. Most investors prefer lumpsum investments when they have a cash windfall, whereas SIPs are better suited for beginners because they benefit you in both bearish and bullish markets through rupee cost averaging.

Let us learn more about these investment methods and understand the key factors that set them apart.

What are the differences between SIP and lumpsum investments?

Some of the major differences between SIP and lumpsum investments are given below.

SIP Investment

Lumpsum Investment

With SIP investments, you can enter the market during different market cycles as the investment is recurring. So, you do not have to time the market.

Lumpsum investments are one-time investments. You need to be aware of the market cycles or trends to identify the right time to invest a lumpsum amount. This investment is generally opted for when the market is bearish.

SIP investments have a low barrier of entry. This also makes them beginner-friendly. You can invest as low as Rs. 500 with SIP

Lumpsum investment is preferred by experienced investors who have a high-risk tolerance. You need to invest at least Rs. 1000 for lumpsum investments.

As SIP involves buying Mutual Fund units during the different market cycles, the cost per unit is averaged out over the investment tenure.

Lumpsum investment is a one-time transaction. The price of the Mutual Fund units will depend on the market cycle. The cost per unit, therefore, is not averaged out.

With SIP investments you can choose to  reinvest the interest earned. Combined with newer instalments, the power of compounding helps generate greater returns.

While you can choose to reinvest the interest earned and benefit from compounding, the principal amount remains the same.

SIP instils a habit of saving frequently.

Lumpsum investment allows you to save money and eliminates the possibility of overspending. 

What are the factors you should consider before investing?

Before debating on SIP vs lumpsum, you should consider these factors.

  • The amount you want to invest:

If you have a considerable amount at your disposal, a lumpsum investment can be a good choice. However, SIP investment is more suited if you have less on hand and are trying to inculcate a savings habit.

  • The market timing:

When the market is low, the lumpsum investment will generate higher returns. But, if identifying market cycles is still a challenge, then a SIP will help distribute the risk. 

  • The type of fund you choose:

Market volatility plays a crucial role in returns when it comes to specific fund categories. Hence, you must consider the type of fund, equity, debt, hybrid, before investing. 

On a final note:

Selecting an investment avenue must depend on your short-term and long-term goals. Some of the crucial factors which you need to consider are:

  • Monthly income 

  • Financial stability 

  • Investment goals 

  • Risk-appetite

Having a Demat Account opens a host of avenues for investing in the stock market. HDFC Bank offers a hassle-free way to open this account online.

To know more or to open a Demat Account with HDFC Bank, click here.

Click here to read more on how to invest SIP with a Demat Account.

*Terms and conditions apply. This is an information communication from HDFC bank and should not be considered as a suggestion for investment. Investments in securities market are subject to market risks, read all the related documents carefully before investing.