Every human familiar with the concept of money is undeniably an aspirant for wealth. As the world has become accustomed to stock trading, pathways to acquiring wealth seem limitless. Investors can put their trust and money into a never-ending list of financial instruments to fulfill their dreams of attaining financial freedom. Mutual funds are one of those. Two types of mutual funds investment strategies that have been in the buzz are SIP mutual funds and lump sum mutual funds investments.
Lump sum investments and systematic investment plans can be considered diametric investment strategies because they differ completely in their approach and strategy. As the name suggests, lump sum investment involves investing money in bulk. On the other hand, SIP involves investing a fixed amount over longer periods and at regular intervals.
An investor’s preference can lean towards any of them, depending on their investment appetite. Thus, there’s no clear answer to the best of the two. Even the best app for mutual fund would falter while trying to give you an answer to this.
Finding out which investment plan will work best for an investor when they invest in mutual funds online is a quest that investors have to go solo to figure out. However, we’ve compiled data backed by quantitative analysis that can give you some direction as you embark on this quest to find the best investment strategy for yourself.
Covering lump sum investments first, they are considered ideal for those investors who are open to taking higher risks when given a chance of gaining higher returns in a short time.
As per data published by Northwestern Mutual, lump sum investments outperform SIP online investment plans when viewed in the context of the returns they generate over a specific time. Additionally, lump sum investments do not require investors to stay disciplined while making investment decisions. As lump sum investments are one-time investments, an investor can rest assured that they won’t have to keep track of dates when they need to invest in a mutual fund again. For some individuals, this can be mentally relieving.
On the other hand, SIP demands discipline and holds the potential to generate higher returns if the investors keep investing for a long time. It’s exactly like sowing a seed in hopes of it becoming a tree and then reaping the fruits of your discipline after years. SIP can be a good investment choice for individuals with budget constraints because it involves investing small amounts of money over time.
However, it is worth mentioning that both investment strategies are prone to risks. Both investment strategies can backfire if the market experiences a downturn, resulting in the value falling for the funds into which the investor might have invested their money. Of course, the loss will vary depending on the amount invested and the investment plan followed. Nevertheless, if planned carefully and realistically, both investment strategies can help investors attain their financial goals in the desired time.
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