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Systematic Investment Plans (SIP’s) were introduced in Mutual Fund Investment in the year 1993, from that time to till today, it has gained much popularity. Investors in India take SIP investment in Mutual funds as the best option for their investment planning.

The prominent reason behind the popularity of SIP in mutual funds is the only statement that is ‘Timing the market is waste of time and a bad practice’! This one sentence has led investors to get attract toward SIP’s much more but in all these scenarios, most of the investors have distanced out from lumpsum investment. In fact, they are afraid of making one-time investments in equity markets and mutual funds.

Here what investors need to understand that overdoing the SIP logic can be bad for their portfolio because it may keep them significantly under-invested in equities. Let us understand this in detail.

SIP’s Workout Well For Monthly Savings!!

Experts advise that SIP’s in mutual funds work as the best way for those who are new to the capital market and investors. The reason behind this is that the new investors are generally the salaried individuals who look towards saving a part of their income monthly that they can easily invest in the mutual fund via monthly SIP.

SIP’s are the simplest way of investing in a mutual fund for a salaried person. They can invest what they save monthly from their income in mutual funds. Not only this, SIP’s offer them the most flexible features like they can pause their SIP installment, in case if they have spent their money on some other important work or emergency. Investors can go pausing a maximum of 6 SIP installments, after that they can again resume their SIP and continue investing. Basically, for a disciplined investment program, SIPs work well! 

For starting a SIP, you need not go through hectic processes, get your KYC done, pick out a mutual fund scheme, select your SIP amount, fix a SIP date per month, and you are done. Your money will e deducted automatically on the fixed date of every month and will be transferred into your mutual fund scheme.

Lump-Sum Investments Might Hit A Snag In The SIP Approach!!

Some investors go for occasional lump-sum investment, probably when they either get an annual bonus or sale of a property or redemption of tax-free bonds. Investors who are more directed towards SIP investment, get reluctant when it comes to investing a larger sum in one go – in mutual funds or stocks. The reason behind this is that markets are volatile and investors always wonder if it is a good time to invest.

Investors favoring SIP’s, are already convinced on a high scale by the financial advisors, that SIPs are good, this saves your time by timing the market on your behalf, and you should simply invest through SIPs. 

After all this, investors map their monthly savings, with SIP’s in mutual funds but often get confused about what to do with the big sum they get in the form of an annual bonus or any other way, and often land on choosing the not so appropriate option to park their one-time investments.

What Can Investors Do Differently? 

To do differently, obviously, investors must go tasting a mix of both the mode of investing that is lump-sum and SIP in their equity mutual fund investment. The SIP orthodoxy that market timing doesn’t work must be ignored before we regret it.

Well, investors would hardly follow any advice until and unless they do not get to hear stories to hard logic. Here I would advise just combine the two logic, SIP’s for your monthly savings and Lump-sum for your one-time inflow, probably you will realize that investing with this approach in equities may serve your investments well.

It is perfectly fine to try and work out a sensible program of investing one’s lump-sum holdings into equity markets gradually. It is also equally fine to keep this program dynamic. For example, if I have to invest Rs 10 lakh inequities, I may invest Rs 1 lakh right away and plan to invest the next Rs 1 lakh if either the markets go down by 5 percent or if one month passes without that happening. I can also add ceilings to my program and postpone my investment if markets run up more than 10 percent in a month.

So basically, timing the market is not that bad also, and investing via a mixed approach of both SIP’s and lump-sum, serve your investment in a more authentic way.

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For any kind of query you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.

Happy Investing!

(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).