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I have three common friends; their names are Ganesh, Rishikesh, and Prashant. Ganesh is in the army, Rishikesh is a journalist, and Prashant is a doctor. All are in good jobs, so they get a good salary. They are very fond of investing. But many times they do not understand where and how to invest. When they started looking for different investment options, they found investing in mutual funds easy, simple, and low risk. There are two ways to invest in mutual funds: one is SIP and the other is Lumpsum. But they often get confused between SIP and Lumpsum. Many of us must be facing this problem; many of us must be thinking about which one to choose. In today's article, we want to understand which process can be best for us according to our financial capacity.
 

What is SIP?

A Systematic Investment Plan (SIP) is an investment process that allows you to invest from a minimum amount. Through this, you can invest every week, every month, or every three months. You can start a SIP even from Rs 100.
 

What is LUMPSUM?

While SIP offers a certain frequency of investment, Lumpsum does not offer such a facility. In this, you can invest the amount you want in one go.
 

Benefits of SIP:
 

Rupee Cost Averaging:

In planned investments like SIP, the same amount is invested every month or over a period of time. Therefore, when the market price is low, more units are received; and when the market price is high, fewer units are received. This keeps the average cost of the investment balanced. In long-term investments, rupee cost averaging reduces risk to a large extent and helps investors get stable and balanced returns.
 

Discipline of Investing:

Through SIP, you invest every week, every month, or every three months according to the dates you choose, which creates discipline in the investor.
 

Start investing with a minimum amount:

The biggest and special feature of SIP is that you can start investing from as little as Rs 500. Some mutual funds offer the facility of SIP from as little as Rs 100.
 

Compound Interest:

If you keep your investment for the long term, the returns you get are invested back in the market; that is, your investment keeps compounding.
 

Disadvantages of SIP:
 

• Returns from SIP are not likely in the short term; you have to wait at least 5 to 7 years to get good returns.

• If the market is bullish, there is not much benefit in the short term.
   

Advantages of LUMPSUM Investment:

• If you invest at once, you do not need to keep a close eye on it, which also saves the investor’s time. While you track your investment month by month in SIP, you do not need to repeat the process in a Lumpsum investment.

• Lumpsum investment plays an important role in building wealth for the long term. If you invest in lumpsum during a market rally, you get more benefits than SIP.

• In a bullish market, Lumpsum gives faster and bigger returns.
   

Disadvantages of LUMPSUM Investment:
 

• Lumpsum investment is not considered suitable for new investors. Proper knowledge and experience are required to make such an investment.

• If you invest in a falling market, you may have to bear a huge loss.

The right criteria for whether SIP or LUMPSUM is good for you..
 

SIP selection criteria:

If you have a regular income and your risk-taking capacity is low or you are new to this field, then investment through SIP is considered a good option for you.
 

Criteria for choosing LUMPSUM investment:

If you have a large amount of money, along with a higher risk-taking ability, or if you want to earn returns in a growing market, you can consider Lumpsum investment.
 

Conclusion:

From the above information, you must have understood that both SIP and Lumpsum processes have their advantages, but they are different. If you are employed, you can go for SIP, and if you have a large amount of money coming together—like a provident fund payout or the proceeds from the sale of an asset—then you can go for Lumpsum investment after studying the opportunities in the market.
 

Frequently Asked Questions:
 

1. What is the main difference between SIP and Lumpsum?

Ans: Investment in SIP is done in small amounts many times, whereas investment in Lumpsum is done in a large amount at once.
 

2. How much amount is required to invest in Lumpsum?

Ans: There is no rule about a minimum or maximum amount for this, but when the market is rising, the higher the amount, the more likely it is to get higher returns.
 

3. Who is SIP suitable for?

Ans: SIP is considered best for people who have a regular income or are working.
 

4. How much tax on SIP after 20 years?

Ans: Under the current tax law, Long Term Capital Gain Tax (LTCG) is levied on investments held for more than one year. There is no tax on gains up to Rs 1 lakh. Capital gains above Rs 1 lakh will be taxed at the rate of 12.5%.

5. How many years are good for SIP?

Ans: If you are investing for a period of less than three to five years, then you are less likely to get high returns. If you are investing for a period longer than this, compounding and rupee cost averaging give higher returns. Therefore, it is considered good to have an SIP for at least 10 to 15 years.