There Systematic Investment Plan which called SIP, it is said that you will always get the benefits from it becomes there your cost becomes average. Firstly, lets understand what the difference between a Systematic Investment Plan is and a Lumpsum, Systematic Investment Plan that we can call SIP in short. If you keep investing some money every month in mutual funds so we call it SIP investment, that is if get your salary monthly end, you think that you should save and invest some money, so you can invest in SIP.
Another way of investment in mutual funds is lumpsum money, suppose you got a bonus, or some stock options are available in the companies. And you got some money from the sold property. You may have inherited some money, and from there you got some money, so if we invest such windfall gains in mutual funds then it is called Lumpsum investment, another way in Lump-sum investment is you can also save money every month. And when you get a chance or when you feel that the market is right, then you can invest the lump sum amount.
Some advantages and disadvantages of SIP and Lump Sum investment. SIP, in Systematic Investment Plan you can invest a very small amount, you can start investing from Rs. 500, and now second advantages is that you don’t have to time the market. That is, you do not need to track the Market, Sensex, and the Stock Market. You can invest money every month, if you keep investing money every month, then from here, our third profit turns out, the market keeps going up and down, your cost gest averaged, but since the cost is averaged, your returns too get average out, somewhere its advantage is its disadvantage also. And the fourth advantage is saving, and investment becomes your habit.
What are the benefits of the lump sum investment. The first advantages is that when we get windfall gains, so we tend to spend that money as much as possible, there’s nothing wrong with spending some money. But if you invest that money somewhere then that money can be multiplied, and another huge advantage of lumpsum is that if you time the market, if you make the entry right i.e., when market is very low and it is at the bottom, and that time if you invest you can get very good returns.
So in the Systematic Investment Plan, your returns get averaged out, the returns we will see 5 years, 10 years, 11 years, 12 years, funds has given returns of 12-18%, this means you can assume that, in the long run, funds will keep giving you returns of 12 to 18% , it is possible to get a 20% return in SIP if we choose the right funds and invest for long term. But if we can track the market then Lumpsum investment will be good for us. Now if we want to make a strategy, which type of investor should invest where. Here will divide investors into two categories, the first category is the investors who do not have time or knowledge and who cannot track the market. Suppose if they have lumpsum money or get windfall gains. Then put that money in a debt fund. In debt funds you get fixed returns, your money is invested in government securities or cooperative bonds deposits. There we get fixed returns. If we invest a small amount of money in a debt fund within the short term, then you can invest money gradually every month in the form of SIP. Plus, from your salary monthly, you can also invest some portion of it the equities. But we will surely get to see more returns than FD when we talk about 8-10 years. Let’s see about the second category of investors. Those who have time, who keep reading about the market, if you can track the economy a little if you can understand some macro factors, and if we can guess in which direction the economy is going, is Sensex about to fall or it get overpriced, so what should such investors do? The should accumulate capital firstly, suppose you get monthly income, even if the income is uneven, sometimes income is less, and sometimes it is more, or even if you are salary employed, you must have some savings every month, you should invest money in debt funds.
In SIP, keep investing some money in debt funds every month. When you feel that the market is now at the bottom, when the market falls, then that is a very good opportunity, then you can invest lumpsum money in equities for long term, when the market is at the bottom, then you can get very good returns. As people think that in SIP they will probably always get higher returns so it is not so, if you follow the market a little bit if you can understand in which directions, the economy is going, if you understood a few macro factors too, and if we invest money when the market goes down, you will always get the good returns.
