SIP and Lumpsum: How to Invest in Mutual Funds?

Padmaja Choudhury   /   January 29, 2022

Mutual funds are one of the most popular and diversified investment vehicles available to investors. Lumpsum investment and Systematic Investment Plan (SIP) are two of the most popular ways investors can invest in mutual funds.

One of the critical questions that mutual fund investors ask is whether they should go in with a lumpsum amount or take the SIP route.

So, in this article, we will check both the investment routes and understand when it is the best time to invest in mutual funds through the SIP or lumpsum route.

Differences between lumpsum investment and SIP 

People who invest in mutual funds through SIPs and lump sums can benefit from the possibility of making money. However, the significant difference between SIP and lumpsum methods is the investment frequency. SIPs let you put money into a mutual fund scheme regularly. Mutual fund houses offer daily, weekly, monthly, quarterly, half-yearly plans through which you can invest your money regularly.   

Lumpsum investments are one-time investments where you put a sizeable amount in the mutual fund account in one go.

The minimum investment amount is another difference between the SIP and lumpsum investment. You can start investing in a mutual fund through SIP at just Rs.500 per month. However, the initial investment amount for a lumpsum investment is Rs.5000, and you can make additional investments starting at Rs.1000.

 As an investor who has a small amount of money to invest, SIPs might be better for you. Lumpsum investments may be better for people who have a large corpus and are okay with taking risks.

Best time to invest in a scheme through SIP

As we have seen that SIP does away with the need to invest a large sum of money all at once, SIP is strongly recommended for individuals with a steady salary looking to invest in equity funds for the long term.

 SIP investing also works effectively when the markets are down. This is because, while the price is low, an investor can buy many mutual fund units. Once the market takes off, the growth will be strong.

The most important question is: when is the best time to invest in a SIP?

Any time is appropriate to invest in a mutual fund scheme through SIP.

Whether the market is at an all-time high or low, you don’t have to bother.

This is because the SIP route is taken as an investment route to invest for a long time with a minimum period of five to six years. 

Furthermore, the longer you stay invested, the more you can benefit from the power of compounding.

Best time to invest in MF scheme through lumpsum

In a rising market, a lumpsum investment strategy works better than SIP. But what if you get it wrong and the market goes into freefall?

There is a way to go about it. If you have a sizable chunk of money, you can make a lumpsum investment in a debt fund and then opt for a Systematic Transfer Plan (STP). An STP is a method that allows you to transfer a fixed amount every month from the debt fund to an equity fund of your choice.

If you have a large sum of money, a lumpsum investment may be an excellent way to go so that you don’t wind up wasting it. As debt funds are less affected by market fluctuations than equity funds, you may invest in debt funds through the lumpsum method. 

 Moreover, if you need to park your money for the short term, say three years, you can invest the entire amount in a debt fund. 


Whether you need to invest in mutual funds through lumpsum or SIP will depend on your financial objectives and risk tolerance. 

If you are trying to become disciplined with your investments and invest long-term, SIP can be a better option.

However, if you have a sizeable amount to invest in the short term, you may invest the entire amount in a debt fund. However, if you want to invest the amount in an equity fund, you can opt for STP that will shift a fixed amount from the debt fund to the equity fund as per your requirement.

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