Have you ever wanted to exceed the returns on your savings account or fixed deposit? If you are a beginner and eager to start saving for the future by exploring strategic investments or learning investment tactics. This post will discuss two popular investment strategies: Systematic Investment Plan (SIP) and Lump Sum investment, with the goal of maximizing investment returns. I will help you choose the best suitable investment strategy or financial plan to achieve your financial objectives.
This post is going to be beneficial for those looking to learn investment strategies, with clear definitions, calculation of returns on investment, what to choose, how to invest, where to invest. First, we start with definitions of SIP and Lump-sum.
What is Systematic investment Plan (SIP)
Systematic investment Plan (SIP) – Investment with fixed plan and fixed amount. Something happens in a system manner. You plan your investment in a systematic manner. For example, you invest some fixed amount every month in the stock market or mutual funds or any other investment. We call it “SIP”.
You save every month as per your need and invest it as per your knowledge. Returns totally depend on your investment and the time period till you stay invested.
What is Lump-Sum Investment
Lump Sum investment – “One time investment with a big amount”. Suppose, you have Rs.5,00,000/- to invest and you can do it in one shot, instead of monthly investment. It’s like an FD of lump-sum amount with greater returns.
Difference between SIP and Lump-Sum Investment
| SIP | Lump-Sum | |
| Investment amount | Depend on you can start as low as Rs.500/- per month | Depend on you, can start as low as Rs.5,000/- |
| Frequency | Monthly, yearly, quarterly | One-time and invest any time |
| Risk management | Does not depend on the market up and down. And keep savings on regular basis | More fluctuations on returns as lump-sum invested one-time. |
| Cost averaging | Your regular investment can absorb market shocks, and average the investment | If you keep investing lump-sum after some gap, you can absorb ups and downs. |
| Suitability for different financial goals | retirement planning, child’s education | retirement planning, child’s education |
| Market timing | Investment through SIP does not depend on timing. | Investment depends on market timing. If you invest lump-sum when the market is down, you can earn good returns. |
Returns calculation on SIP and Lump-sum
Now, let’s answer your next question – is there a difference in returns on SIP and lump-sum?
Calculate returns on SIP. Suppose, you are investing Rs.10,000/- for every month for 15 years at an interest rate of 15%.
Total Investment will be Rs. 18,00,000/-
Interest earned – Rs. 49,68,631/-
Total returns you will get Rs. 67,68,631/-
Now, calculation of returns on lump-sum investment. Suppose, you want to invest Rs. 18,00,000/- one-time for 15 years at an interest rate of 15%.
Total Investment will be Rs. 18,00,000/-
Interest earned – Rs. 1,28,46,711/-
Total returns you will get Rs. 1,46,46,711/-
This calculation serves as a tool to comprehend the returns associated with various investment strategies. I don’t guarantee specific returns since outcomes depend on factors such as your investment amount, duration of investment, market performance affecting interest rates, and various other variables.
This illustration is intended to provide clarity regarding your financial plans and to analyze what may be the most suitable option for you. Learn how much need to invest monthly to get 1 crore dream amount?
Where to invest
In India, you may be familiar with fixed deposits, which involve depositing a large amount of money, and recurring deposits, where you invest money on a monthly basis, similar to a Systematic Investment Plan (SIP).
SIP and lump sum mostly pertain to mutual funds and equities. If you are knowledgeable, you may easily start a Systematic Investment Plan (SIP) in reputable mutual funds or equities. Prior to making an investment, it is crucial to do thorough research and carefully strategize your financial resources.
Financial Discipline
To invest in the market like mutual funds and stock markets requires a lot of knowledge so that your money remains safe. To keep your investment safe, you need financial discipline. There are few parameters which you can follow: –
- Investment Goals: Determine whether your investment objectives are short-term or long-term. In India, according to Income Tax Rules, investments held for more than 1 year are considered long-term and taxed accordingly. Short-term investments are those held for less than 1 year. Plan according to your needs, future goals, and financial aspirations to ensure you invest strategically and in the right direction.
- Risk Tolerance: Assess your risk tolerance carefully, as it’s a crucial factor in investment decisions. Market fluctuations are unavoidable, and maintaining a calmness while investing is essential. Whether you opt for short-term or long-term investments, it’s vital to understand the risks involved and make informed decisions. Proper learning and understanding of the market are imperative, especially when investing in stocks, which require both short and long-term strategies.
Read SIP vs Lump-sum in terms of taxation, Pros and Cons
Conclusion
Investment Knowledge: Continuous learning is key to achieving higher returns on your investments. Stay informed by following blogs, seeking expert advice, and conducting thorough research on mutual funds and stocks. Embrace failure as an opportunity to learn and grow, rather than a reason to give up. With dedication and a commitment to learning, you can navigate the complexities of investing and pave the way for success.
