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Investment in mutual fund is customizable according to the needs & wants of investors and thus like numerous schemes to invest, mutual fund also has options in terms of periodicity in investment. Periodicity simply number of time which the investor chooses to invest in mutual fund. It can be every day, every 10 days, every month, every quarter or just one-time as the investor may think fit. This habit of continuous investment (every month) is termed as systematic investment plan, whereas one-time investment of any substantial amount is known as Lump-sum investment. It is pertinent to note that both the investments are mere categorization based upon the period of investment and have their individual characteristics which are as follows:

Features of SIP

• Small & regular investment, since the period between two investment is smaller, SIPs tends to be lighter on your budget and at the same time helps you create sizeable wealth. This type of investment is good for beginners.

• Discipline to your expenses and your lifestyle: Since the investment tend to be continuous at regular intervals, it helps to achieve save first pay later strategy easily. This indirectly brings discipline in spending habits at the same time helps you reach your financial goals.

• Power of Compounding: Possibly the most talked about feature of all SIPs and also the most effective of them. As and when the SIP generates return those are re-invested in the corpus along with your new investment. For example a 2000 Rs. Per month SIP invested every month can at the rate 10% compounded annual growth rate (CAGR) generate Rs. 1,54,874 after 5 years.

• Rupee cost averaging: Similar to power of Compounding this is another classic SIP feature which helps dodge the market volatility. It is a natural principle of buy low sell high, however timing the market is very difficult, thus investment via SIP can mitigate the risk of timing by investing continuously. This way one buys higher units of mutual fund when market is low and vice versa.

• Ease of investing: Let us just say, with the current digital world investment in SIP is easier than online shopping. A onetime KYC and registration to common account number makes you opt, switch, stop, resume, modify SIP with just a click. In addition to that the SIP mandate, debits you bank account on the date of SIP directly, so no need to transfer funds or visit any website for payments.
If SIP is Rolls Royce, Lump-sum investment is Bugatti, let us check some of its features
Features of Lump-sum Investment

• Larger investment amounts: Lump-sum term itself suggest investment of substantial amount at once. Since the amount is big it also generates big returns without investing at regular intervals.

• Investment irrespective of fixed intervals: Lump-sum investment has the luxury of investing anytime and also at any number of intervals since there is no bank mandate involved in such investment.

• Time-based investment: Timing is very important aspect in Lump-sum investment since investing in rising market is futile. Lump-sum investment in rising market may result into costly purchases and thus impact the return percentage, thus lump-sum investment is always ideal in falling markets.

Lumpsum vs SIP

Lump-sum vs SIP is always a tricky question, however based upon investor’s needs, it is easy to determine the right method of investment. Question such as tenure of investment, liquidity criteria, tax savings and most importantly objective of the investment must be sought to recognize the correct method. When it is investment there is no straight forward answer, however for every investment long term horizon & patience are the keys to unlock wealth.

(The author is Founder, Money Mantra; views expressed are personal)