Investments: Lump sum versus SIPs

The growth and popularity of the SIPs have been quite impressive over the years and it has also led to comparisons between high yielding lump sum investments and the disciplined investments in the SIPs. The true merit of any investment scheme is gauged by its ability to generate a smooth flow of income even in a volatile market situation. Let’s find out if the SIPs are actually more convenient for investors at a time like this.

Reasons why SIPs are better than lump sum investment at this time:


  • As per data, in good market conditions, the lump sum investment is a source for earning higher returns through the SIPs. The one thing that acts as a glitch is the high-risk factor associated with the lump sum investment.  They tend to expose its investors to a risk of losing their money while the SIPs tend to cushion the investors against such risk.
  • Timing is an important factor for making an investment; mistiming your investments can leave you exposed to the volatility of the market. When an investor invests in SIPs the risk is comparatively lower; the disciplined investment schedule offers the investors freedom from timing the market before making an investment.
  • Over a long period of time, the lump sum may generate more returns but in a falling market the returns earned through the SIPs are usually higher and the credit goes to its feature of cost averaging.The feature of Rupee Cost Averaging helps the SIPs to earn higher returns with wider risk coverage during a falling market.
  • When an investor invests in the SIP strategy, he/she doesn’t have to be bothered with the highs and lows of the market. In the case of the lump sum investments, the investors have been on guard and keep regular tabs on the market movements to manage their portfolios accordingly. The SIP investors can also curb the volatility of the market through the disciplined approach of periodic investment.
  • An investor can derive the benefits of cost averaging in SIPs by buying more units in the low market phase and lesser units in a thriving market. To ensure a steady flow of return in both high and low market phases, an investor should invest in a long-term SIP.
  • Through an investment in the SIP, the investors will avail a weighted average return spread over a span of time. Investing in a long-term SIP will help them compound their earnings and accumulate funds even in a time like this.
  • Nobody can guarantee that the best of equity stocks and funds will not be affected by the volatile phase. The systematic and periodic investment helps the investors reap the benefits in the long run.

Some investors may argue that the SIPs don’t perform as well as the lump sum investments but they don’t realise that the SIPs tend to offer better returns when the average entry price is lower. Contact our financial experts to know more about the best choice of investment at present.

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Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Past performance is not an indicator of future returns. Wealth Redefine is a AMFI registered Mutual Fund distributor – ARN - 167127

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