One-time investment vs SIP investment: Which is a better way to accumulate money?
One needs to make the entire payment for lumpsum investments, whereas SIPs require fixed payments at regular intervals. They differ from each other and also contradict in terms of features.
When it comes to investments, people usually resort to investing in a lumpsum manner or by investing at regular intervals. In the case of one-time investments, one has to pay the entire amount at once, whereas in SIPs, investors need to make payments at regular intervals. Both these investment strategies work differently for people with different and contrasting financial goals. They come with a set of pros and cons. The major difference between the two is the cash flow in the investment. Confused?
If you are struggling to make a choice between making a one-time investment or a SIP, learn some of their major differences and decide which one will perform better for you.
Differences between one-time investment and SIPs
- With SIP investments, one will not need to time with the market as they can enter during different market cycles. Whereas in lumpsum investments, one needs to be aware of the market cycle and identify the right time to invest.
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- While lumpsum investments are generally preferred by those who have a higher risk tolerance and can afford to put a huge sum of money at once, SIPs have a lower variant of entry, thus making them beginner-friendly.
- As SIP investments include purchasing mutual fund units, the cost per unit is averaged out over the investment tenure, whereas in lumpsum investment, the cost per unit is not averaged.
- One of the major benefits of SIP is the power of compounding. This helps to reinvest the generated interest combined with newer instalments, assuring greater returns. On the other hand, while investors can reinvest their earned interest and benefit from compounding in lumpsum investment, the principal amount will remain the same.
- SIPs will help in maintaining a habit of regular savings, while lumpsum investment allows one to save all the money at once and eliminates the chances of overspending.
Which one is better between one-time investment and SIPs?
Considering the differences, one can make a choice by considering the amount they want to invest, the market time, the type of fund, and most importantly their future financial goals. SIPs are a better option for those looking for long-term investments, while lump sum is good for short-term plans.