What is Lumpsum Investment?
A lump sum investment in a mutual fund means investing a sum of money in a mutual fund scheme at once, which remains invested for a desired investment period. In other words, it does not involve instalments or breaking the whole amount. For instance, a lumpsum investment is a better option for investors having a long-term investment horizon (10 years or more) and, at the same time, understanding the market fluctuations because the investment value may go up or down based on the market performance.
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Even though mutual fund SIP looks like an attractive option for investors as it does not hamper the liquidity of investors at once. But investing in lumpsum has its own benefits and limitations. Therefore, investors must thoroughly analyze and understand their risk tolerance levels and investment objectives before making any investment decision.
SIP vs Lumpsum Investment: Key Differences
Example
The below calculation helps to understand the difference between lumpsum and SIP investment.
Investing lumpsum amount in mutual funds is suitable when investors have that sum of money ready with them. On the other hand, SIP is suitable for investors who want to invest a fixed amount regularly.
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Therefore, the investment strategy depends on the investor’s investment horizon, financial goals and risk tolerance levels.
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