A lumpsum investment is beneficial when an investor has a sizable amount of money available to invest. It allows for a potentially higher growth rate as the entire investment is deployed at once, giving the capital more time to benefit from market fluctuations and potential appreciation in the long run. 

However, lumpsum investments are subject to market timing risks, as the investment is made at a specific point in time when the market may be overvalued or undervalued.

On the other hand, a SIP allows investors to invest regularly over a period of time. This investment strategy mitigates the impact of market volatility as investments are made at different price points. 

SIPs are particularly beneficial for investors looking to invest small amounts regularly and have a disciplined approach to investing. So, how should one effectively balance mutual fund lumpsum and SIP investments in their portfolio? 

Sundeep Sikka, ED and CEO, Nippon India Mutual Fund says, “In the mutual fund industry, systematic investment is quite popular. More than 35% of the equity assets (excluding ETFs) are systematic assets – where investors had systematically invested and accumulated corpus.”

SIPs also offer the advantage of rupee cost averaging, which means that investors can buy more units when the markets are down and fewer units when the markets are up, thus potentially reducing the overall investment risk. 

“If one were to invest ₹50,000 every month, at least 50% can be through monthly SIPs in equity funds, the rest can be either lump sum or in debt funds/other assets. Overall, I would urge investors whether SIP or lump sum, the key is to stay invested for the long term,” says Ashish Gupta, chief investment officer of Axis Mutual Fund. 

CA Nitesh G Buddhadev, Founder, Nimit Consultancy, says, “For most salaried individuals, SIP is the ideal way, however they should try to put in some lumpsum as well every year when they get a bonus or have some other savings. Approx 20 to 25% of total SIP amount one should invest as lumpsum (Say if someone is doing 25k SIP so 25% of 3 lakh = 75k). It’s like you are investing for 15 months in 12 months. In case of business owner, one might have irregular cash flow however they should try and do some min possible SIP along with lumpsum.”

In conclusion, it is advisable to consult with a financial advisor to determine the appropriate allocation based on your individual circumstances. Remember, investing in mutual funds comes with its own set of risks, and it is important to do thorough research and consider your financial situation before making any investment decisions.

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Updated: 22 Nov 2023, 03:55 PM IST