Any type of investment you make should be based on the investment profile you have. And that encompasses your current income, risk profile, expenditures and financial goals. Depending on your affordability, you can decide to invest through a regular SIP or that of lump sum in one go.
Yes, many people have sip vs lump sum thing in mind. Before you go any further there are some basic things that you should know and understand.
How can you invest in tax-saving mutual fund?
ELSS (Equity Linked Savings Scheme) is the one mutual fund that can help you save tax (as per the Section 80C). There are two manners in which you can invest in a mutual fund. One is via Systematic Investment Plan (SIP) and the other by making a one-time annual lump sum payment.
Lump sum investment:
It is a one-time investment that you do for one year, such as say, Rs. 12,000 annually. In case you have a large disposable amount in hand and have a great risk tolerance, you could opt for a lump sum investment.
Same Rs. 12,000 via SIP (Systematic Investment Plan) shall translate to putting Rs. 1000 every month. SIP is a perfect choice in case you cannot afford a lump sum investment. Some could also prefer it for its rupee-averaging advantage.
Benefits of SIP over that of lump sum investments
First of all there is no need to time and continually watch the market. You know investors, mainly inexperienced ones, are often perplexed about the finest time to enter the market. In case you invest a huge amount, there is always a danger of losing out a huge portion of your investment in a market crash. You also stand to advantage greatly during a market high. Moreover with a SIP, your money gets spread over time and just some parts of your whole investment shall face the market volatility.
Rupee price averaging
SIP permits you to invest at diverse levels of the market cycle. Once the market is low, the fund manager purchases more units and can vend high once the market is at its peak. It would help to diminish the per-unit price of buying the units. This marvel is known as rupee cost averaging.
You built the habit of saving
Once you initiate an SIP, you invest a handy but fixed sum in a tax-saving mutual fund scheme, inspiring saving habit in you. It is needless to say that it is best for the budding investors. If you have just started your career then beginning SIP is one way to step in the world of investing. This way you get exposure to equities with an insignificant amount. Later, you can try out riskier but strong equity schemes in case it suits your investment needs.
Thus, since you know a lot about SIP now, you might be in a position to take a sound decision for you! You have to take baby steps towards mutual funds if you want to do investments and SIP is the ideal way.