Index Fund Corner
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| Scheme Name | 1-Year Return | Invest Now | Fund Category | Expense Ratio |
|---|---|---|---|---|
| Axis Nifty 50 Index Fund | +32.80% | Invest Now | Equity: Large Cap | 0.12% |
| Axis Nifty 100 Index Fund | +38.59% | Invest Now | Equity: Large Cap | 0.21% |
| Axis Nifty Next 50 Index Fund | +71.83% | Invest Now | Equity: Large Cap | 0.25% |
| Axis Nifty 500 Index Fund | — | Invest Now | Equity: Flexi Cap | 0.10% |
| Axis Nifty Midcap 50 Index Fund | +46.03% | Invest Now | Equity: Mid Cap | 0.28% |
One of the most common issues faced by investors while opting for a mutual fund is to decide whether to invest through a lump sum amount or via systematic investment plans (SIPs).
Which of the two options can generate higher returns? Here we take you through an in-depth analysis of both these routes of investment.
Systematic investment plan or SIP
This highly-popular investment option provides the opportunity to investors to share a fixed amount of money into a mutual fund, usually on a monthly basis. SIPs are a good option to build wealth over a period of time. These are highly recommended for young investors, who are new into the market and have a long-time horizon.
Lump sum
Unlike SIPs, investors are required to make a one-time payment at the beginning in the lump sum investment option. Here, investors are not required to make any subsequent payments.
SIP vs lump sum: How should you invest in mutual funds?
Both SIPs and lump sum investment routes perform differently across various phases of the market. Those planning to invest in mutual funds should focus more on the investments rather than the investment strategy and they should only make investments depending on their cash flows. Those who are salaried employees are often advised to invest through SIPs as it will not put strain on their finances. Meanwhile, people having a lump sum amount to put in equity markets can consider the lump sum option.
Differences between lump sum and SIP mutual funds
1. Investment amount
SIP becomes the suitable option for those who have a regular income flow. For example, people who are salaried employees can invest some amount of their monthly income into SIPs on a regular basis. However, if you have idle cash, then investing via lump sum is the best option as you will not be required to invest extra money from time to time.
2. Financial Goals
SIPs are tailormade for those who have long-term goals in life to create wealth, besides taking care of children’s education and other expenses. To understand how much the mutual fund will be able to fulfil your financial goals via the SIP option, you can take help of the CNBC TV18 SIP calculator.
But for people who have idle cash in the bank, a lump sum investment option in mutual funds is a better choice, since it makes you earn market-linked returns that could be way better than the interest earned through savings accounts or other investments options, such as fixed deposits.
ALSO READ | This mutual fund has turned ₹10,000 monthly SIP into ₹3.80 crore in 25 years
3. Market scenario
In lump sum investment, the money invested is subject to market fluctuations. However, in SIPs you have the opportunity to average out the market fluctuations. Besides this, SIPs also help you to gain the benefit of cost averaging. This means that when the market is down, you get more share units for the same amount of money.
4. Flexibility
Market experts believe that there is more flexibility in SIP than lump sum investment in mutual funds. In SIPs, you can star with a small amount and later increase it over the period of time. But such an option is not available for lump sum investors.
5. Entry barriers
In SIPs, there is a low entry barrier for investors. But for lump sum, you require a larger initial amount.
ALSO READ | SEBI’s ₹250 SIP initiative will boost retail participation, says KFin Technologies
