Executive Assistant, LXME
When dealing with mutual funds, one of the most common confusion that arises is ‘How to invest in Mutual Funds?’ Systematic Investment Plan (SIP) or Lump Sum are the two ways you can invest via MFs. This blog is designed to explain to you the difference between the two options and which method is most suitable for you as a woman.
What is a Systematic Investment Plan (SIP)?
Systematic Investment Plan (SIP) is one method of investing in mutual funds. It involves investing a fixed sum of money at periodic intervals i.e monthly. It makes the process of investing in mutual funds very simple as you can easily begin your investment journey with as little as ₹100.
Example – Siya invests in LXME’s Rs. 100 Equity Fund for 3 years with a monthly SIP of ₹ 100. She began her investment on 5th November 2023. Now, every month on the 5th for the next 3 years, ₹100 will be automatically deducted from her bank account and invested in the mutual fund scheme.
Benefits of SIP
SIP is a convenient way to invest in mutual funds because women don’t need to time the market, instead money will be subtracted from their bank account at regular intervals and invested in the MF scheme they have chosen.
You can check out LXME’s goal-based portfolios that are well-researched, diversified and curated by experts and start investing towards your goal with just ₹100!
With SIP, investments are made on a periodic basis and as a result, the cost of investments is averaged out. What this means is that when markets are down, you can buy more units of the fund with your monthly investment and when markets are up, you’ll be able to buy lesser units of the fund. This helps in managing market fluctuations.
SIP can help women diversify their portfolios. As the investment amount is small, they can invest in multiple funds and across different asset classes.
Investing through SIP doesn’t require a huge amount of money you can start investing with as low an amount as ₹100 and grow your money.
You can check out LXME’s Rs.100 funds which are well-researched and curated by experts.
The Power of Compounding-
When you invest through a SIP for the long term, you profit from the Power of Compounding.
For example, if you put ₹100 in a fund and get 4% interest in the first month, the total value of your funds at the end of the month will be ₹104. Now, in the coming month; you will earn interest on ₹104 & not just ₹100. That is, earning returns over the returns already earned. And this is where the Power of Compounding plays its role!
Note: If you choose to invest through SIP then you’ll have to approve your E-nach mandate. It is a One-time Activity where the user provides permission to the banks/ financial institutions to debit the said amount from their bank every fixed day of the month.
What is Lumpsum Investment?
Lumpsum Investment is a method of investing in mutual funds where you invest your money in one go. This means that you make a one-time investment into a fund. A lump sum investment can be made when an individual has surplus cash available from year-end bonus, donation, any profit from sale, etc.
Example – Tiya invests in LXME’s Rs. 100 Equity Fund for 3 years with a lump sum investment of ₹5,000. Her bank account will be debited by ₹5,000 only on the day of her investment since she has decided to make a one-time investment.
Benefits of Lumpsum Investment
It is a one-time investment and doesn’t require any commitment for future payments. This is very helpful for housewives or women who don’t have a steady flow of income.
Lumpsum allows women to have control over their investment timings. They can invest as and when they have extra money (from bonus, any windfall gains, extra savings etc.) and add to their existing investments.
SIP Vs Lumpsum Investment
|A method of investing in mutual funds in periodic intervals.
|A method of investing in mutual funds where you invest in one go.
|You can begin investing with as little as ₹ 100.
|You can start investing with ₹ 100, however, it changes depending on the mutual fund scheme you choose.
|As investments are made in regular intervals, there is no need to time the market.
|Little timing of the market is required as you’ll be investing money in one go.
|Cost of investment
|You can get the benefit of cost-averaging. I.e. While investing periodically you can buy more units when markets are down with the same amount of money.
|Higher or Lower depending upon the market situation
|It helps in encouraging savings and developing financial discipline.
|It helps in preventing unnecessary spending.
What should you choose as a woman investor?
So, sip or lumpsum which is better for a woman investor? Let’s understand through an example.
Siya had excess cash of ₹1 lakh which she received as a gift from her parents so she decided to invest the same in mutual funds as a lump sum and an additional ₹1,000 SIP for 30 years:
|Amount Invested in 30 years
|Value after 30 years*(Assumed rate of return: 14% p.a.*)
|₹ 55.57 Lakh
|₹ 50.95 Lakh
At the end of 30 years, Siya has managed to invest a total of ₹ 4,60,000 (₹3,60,000+₹1,00,000), and value of her investments after 30 years will be approximately 1.07 Crores (₹ 55.57 Lakh + ₹ 50.95 Lakh)
As we can see from the example above, SIP can be suitable investment for women as it involves taking a disciplined approach to investing as well as the convenience and safety of regular payments. Lumpsum is also a great option for investment in mutual funds, however, it is more suited for women who have excess cash with them from bonus, gift, retirement benefits etc. that they now want to invest and grow.
The decision on SIP vs Lumpsum Investment depends on the investment goals of the woman, the amount they wish to invest, their time horizon, and their risk tolerance.
You can start investing in LXME’s expert-curated portfolios through both SIP and Lumpsum!
How much should I invest via a Systematic Investment Plan (SIP)?
You should first identify your investment goals and how much money you are capable of investing regularly. Then, keeping your goals and time horizon in mind, you should determine the amount of investment you want to make. You can also easily calculate the investment required for your goal using the LXME Goal Calculator.
What is the minimum amount required to invest in a mutual fund?
You can begin investing in mutual funds through both SIP and lump sum with a minimum investment of just ₹100.
Begin investing in mutual funds with LXME at just Rs. 100!
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