What makes more sense when it comes to mutual funds? Starting an SIP to invest a little bit of money every month, or investing a large amount of money all at once as a lumpsum?
If you’re new to investing, this question is very likely to plaque your mind, and even confuse you.
The apprehension that most investors face when it comes to investing a large amount of money in a mutual fund all at once is that if markets fall, the large lump-sum amount will diminish in value all at once. Where’s the confusion, then? Well, what if markets rise? This could make your investment value shoot up all at once. And naturally, you don’t want to miss out on that either.
Investors are right in thinking this way. The probability of markets going either way are almost equal. Unpredictability is an intrinsic characteristic of stock markets; no one can really tell you with 100% surety, what’s likely to happen to your investment.
Instead, expert wealth managers and financial advisors rely on macro historic trends and vouch for the power of compounding. The truth is, it’s often better to start investing a small amount regularly, early in life, as opposed to investing a larger amount all at once late in life.
Also, most investors are likely to have small, fixed amounts of money that they can set aside and invest every month, as opposed to large amounts of money to invest suddenly. For instance, if you earn a fixed amount of money every month, setting aside a small portion of that towards a mutual fund investment in the form of an SIP is easier than suddenly investing 3 months’ worth of income altogether.
Investing a large amount together might seem appealing if you are planning to invest for a relatively shorter duration. However, in the long run, your returns will be more or less at par, whether you choose to opt for an SIP or a lumpsum investment.
If you’re the kind of investor who is likely to remain unmoved by sudden market fluctuations, while keeping your eye on the larger, long-term picture, lumpsum investments are the way to go.
However, if you think sudden market fluctuations would make you panic or put you in a tizzy, starting an SIP is better idea.
What’s most important is that you start investing right away, and stay invested even in the face of market fluctuations. In the long run, investors who stay invested end up building an enviable capital.
Also, remember to invest only in Direct Plans. Not sure what Direct Plans are? Read More…