NEW DELHI: SIP (systematic investment plan) and lump sum investing are two different strategies that can be used for long-term investing. SIP investors regularly invest a fixed amount at regular intervals, regardless of market conditions. This approach can help to reduce the impact of market volatility on an investment portfolio.
SIP is a method of investing in mutual funds in which a set amount is invested at regular intervals rather than all at once. As SIPs spread the investment over time, the investor is buying units at different prices ( NAV or Net Asset Value ) rather than all at once. This can result in an average cost per unit that is lower than if the investment had been made in a lump sum, which is known as rupee cost averaging. This can help reduce the impact of market volatility on the overall return of the investment, making it a good strategy for long-term investors.
As a lump sum investor, you have the flexibility to choose when and how much to invest in the market. By making a one-time purchase, you will own a certain number of units at the current NAV of the fund. The value of your investment will then fluctuate as the NAV and market conditions change. It's important to remember that past performance is not indicative of future results and investing in the market carries risk. It's also important to diversify your portfolio and have a long-term investment horizon.
However, if you hold that investment for 7 to 8 years, or for a time horizon of slightly longer than 5 years, this lump sum investment and the volatility you experienced throughout can actually work to your advantage. This will reduce volatility and provide stability in your returns. So, in a nutshell, if you are an investor who does an SIP through a systematic investment plan or an investor who is a lump sum investor but holds on to the investment for a longer period of time, you will benefit from the market downturn, market upward movement, or volatility. You just have to be a long-term investor which means that if you keep investing regularly, this volatility will be your friend, it will give stability to your portfolio and also stabilize your return.
Source: ET Now
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