SIP vs Lump Sum: Which Investment Gives Better Returns in Mutual Funds? - Read Now 

Mutual funds can be invested in either through SIP or lumpy sums. Two techniques have different advantages, and they may suit varying circumstances related to finance as well as your investment target. Therefore, knowing which might favor you more will both maximize returns and make the process efficient with minimal risk.
 
What is SIP and How Does It Work?
Systematic Investment Plans or SIPs are plans under which investment is done in mutual funds at fixed, regular intervals, usually monthly. The advantage of an SIP is its flexibility to start at a very low amount of ₹200. Thus, investors who may not have sufficient upfront to invest can put that amount periodically. Under SIP, an investor benefits from cost averaging on purchase wherein the units bought are more when prices are low and fewer during the periods when prices are high. This strategy smoothes out market fluctuations and hence, SIPs are less risky for long-term investments.

For example, if you invest in mutual fund through SIP for five years, then you may enjoy well-balanced returns even if the market is in up and down. Those who wish to create financial corpus gradually developing disciplined saving habits will find SIP suitable for themselves.

Why Lump Sum Investment Might Generate More Profits
Lump sum investments, in that name, are put directly into a large investment made at one time. Thus, this method gives an increased return if market conditions are favorable. As stated earlier, LIC's Infrastructure Mutual Fund scheme showed the annualized return for past five years around 29.58%. Here the lump sum investment made on ₹6 lakhs has the potential to become about ₹21.92 lakhs in five years.

Lumps are always associated with a high return, but market risk is also increased with the investment. Investments of lumps are more for those having a large sum of money who can handle the market volatility.

SIP vs Lump Sum: Which one is better?
The total investments done as lump sum in case of LIC's Infrastructure Fund were ₹3.27 lakhs more over five years compared to SIP investments. Now, it does not mean that lump sum is always better. Financial goals and risk tolerance along with market conditions to be considered before choosing between SIP and lump sum.

SIP: Lower risk with cost averaging benefits, suitable for regular and disciplined saving.
Lump Sum: Higher possible returns, higher exposure to market risk, and is therefore better suited for the high rollers.

SIP vs Lump Sum: Which one should you choose?
Both SIP and lump sum investment methods have their advantages. It's a good choice to go for SIP if steady returns with less risk matter. Lump sum investments pay off well in case there is a boom in the market. So, whatever suits your goals, it depends on how much one can afford to invest with the risk level he/she can afford.

Wise investment is in accordance with personal financial goals. Then, you should carefully determine your risk profile and investment horizon before making a choice.

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