SIP vs. Lump Sum Investment for Salaried People

Introduction

Earning and spending go hand in hand. But at the same time, we need to focus on saving too for a secure future. There are plenty of methods for saving. However, it becomes a tough choice to decide upon the most effective one. In this article, we will highlight if SIP or lumpsum investment is better suitable for salaried individuals. 

What is SIP?

SIP is the short form for Systematic Investment Plan. This is a quick, easy, and flexible investment option, where the money gets automatically debited from the registered bank account at regular intervals to a chosen mutual fund scheme. Depending on the current market rate, the units get allocated on a specific date. Every time one invests, more units are purchased at the ongoing market rate and added to the existing stock. Therefore, the units are bought at different rates and the investors benefit from compounding and rupee cost averaging. 

Even before you begin your investment, you can check out your prospects by using a SIP calculator. SIPs are ideal for those individuals who seek to build their corpus through regular investments and do not possess enough time or expert knowledge about market conditions. SIPs allow you to make small but regular investments over time so that your wealth becomes inflation-proof. 

Types of SIPs for salaried individuals

SIPs can be classified into two types:

• Regular SIP

This kind of SIP does not require any minimum investment amount limit and throughout the year you can invest any amount. However, the fund manager decides the maximum investment limit depending on the type of fund chosen. 

• Systematic Transfer Plan (STP)

This kind of SIP needs an initial investment ranging between INR 50000 and INR 75000, after which you can regularly invest any amount every month without any minimum limit.

What is a lump sum investment?

A lump sum investment involves the investment of a significantly large amount at a given point. The entire amount gets invested at once, without considering any further instalments or the breakage of any available amount. It comes with a fixed lock-in period. You can check out your prospects by using an online lump sum calculator. 

A lump sum investment is suitable for big goons with thorough experience and knowledge of market conditions. Moreover, the concerned investor must possess the capacity to handle the risks involved with such heavy investments.

Advantages of lumpsum investment

• Simplicity

A lump sum investment is simple as you need to invest only once and requires comparatively lower maintenance costs and transaction costs than SIPs.

• Minimum charges

When compared to periodical investment schemes, a lump sum investment incurs rare minimum fees, since they are made only one time. 

• Capital appreciation

A lump sum investment is made for a longer duration, allowing enough time for capital appreciation in the long run. Moreover, lumpsum investment also gets enough time to get adjusted to the changing market conditions, allowing prospects for significant growth in the long run. You can use a lump sum calculator to know specific results even before investment.

Advantages of SIP

• Rupee cost averaging

Equity and stock markets are known for their volatility. The low phase allows the investors to pick up more and gain significantly during the up phase. In SIPs, investors can stop worrying about the ideal time for entering the market, as rupee-cost averaging opts it out. During the volatile phase, it allows the investor for achieving a lower average per unit cost. 

• Power of compounding

This allows the earnings from investments that are left unused to get automatically reinvested over a certain time period, generating higher returns. You can receive a prospective result by using a SIP calculator. 

• Disciplined investment pattern

SIPs allow you to make regular investments at a fixed interval, thus inculcating disciplined financial management. It tends to cut down on unnecessary expenses and ensure capital growth. 

• Flexibility

Although SIPs are ideal to maintain for a long-term for significant capital growth, however, depending on the circumstances, the investor can withdraw the fund at any given period. 

• Convenience

SIPs are simple and hassle-free. A single standard instruction to the registered bank allows auto-debit at regular intervals towards the scheme.

SIP vs. lump sum investment

• The constant flow of cash

As a small amount of your earnings is deposited at regular intervals, a SIP investment does not necessarily come in the way of fulfilling other financial commitments. Therefore, it is quite suitable for salaried individuals.

• Career start

If the concerned investor, has just begun his/her career, SIP is considered to be one of the most suitable methods of investment. It inculcates the habit of saving from a very early age. 

• Rupee cost averaging

SIPs can add up to offer significant returns, especially in the long run, thus securing your future. 

Conclusion

From the above discussion, it is evident that SIP is better suited for salaried individuals than lump sum investments under general circumstances. You can easily take the help of SIP calculator or lump sum calculator to know your investment prospects better.