Page 36 - Banking Finance November 2024

ARTICLE

Is SIP Always the Best

Option? A Look into

Lump-Sum vs SIP

During Volatile

Markets

SIP is a method of investing a fixed amount at regular intervals, typically monthly, into a mutual
fund. It allows investors to buy more units when prices are low and fewer when prices are high, a
process known as rupee cost averaging.

W hen it comes to investing in mutual funds, to start with smaller amounts, adding up over time without

retail investors typically have two main
the need for timing the market.
options: Systematic Investment Plans (SIP)
and lump-sum investments. While SIPs are commonly Lump-Sum Investment: In contrast, a lump-sum
favored for their convenience, rupee cost averaging, and investment involves committing a significant amount of
affordability, lump-sum investments offer distinct money at one time into a mutual fund. This option may
advantages that can be particularly useful in certain suit investors who have a larger sum ready to invest and
market conditions. In today's volatile markets, choosing are comfortable with a higher risk-reward ratio. Unlike
the right approach can make a significant difference in SIPs, lump-sum investments are more sensitive to market
maximizing returns and minimizing risks. This article will timing, as all funds are exposed to market fluctuations
examine the advantages and limitations of both SIP and from the moment they are invested.
lump-sum investments and explore strategies for when
each option may be best suited during periods of market SIP in Volatile Markets: Advantages and
uncertainty. Limitations

Advantages of SIP in Volatile Markets:
Understanding SIP and Lump-Sum
1. Rupee Cost Averaging: SIPs help mitigate the
Investment impact of volatility through rupee cost averaging. In
Systematic Investment Plan (SIP): SIP is a method a volatile market, unit prices fluctuate frequently,
of investing a fixed amount at regular intervals, typically which can be advantageous for SIP investors. By
monthly, into a mutual fund. It allows investors to buy investing a fixed amount regularly, investors buy
more units when prices are low and fewer when prices more units when prices are lower, reducing the
are high, a process known as rupee cost averaging. SIPs average cost per unit and potentially increasing
are particularly popular among retail investors who prefer returns over the long term.

32 | 2024 | NOVEMBER | BANKING FINANCE