With regards to the investment of the money you have been working so hard to earn, you want to be fully confident to put it in the right places so that you will increase your wealth in the coming years. Two of the most frequently used methods people invest in are the SIP and the lump sum. In brief, you have to discover which option is the most suitable for you. Searching for a SIP return calculator and a lumpsum calculator can give you some information.
What is an SIP?
A SIP is a structured investment system or a plan which helps you to invest a fixed amount of money regularly into a mutual fund or another investment. Usually, the application form that you have to fill out online states the sum of money that will be deducted from your bank account monthly or quarterly and this sum will be invested in the funds that you have chosen. The main advantage of SIPs is that one invests regularly over the period, thus, the strategy called rupee cost averaging is achieved.
Thus, it implies that when the share prices are low, your fixed SIP amount will give you the advantage of buying more units. Furthermore, when prices are increased, you will purchase fewer units. However, this can eventually reduce your average cost per unit per unit over time compared to the single point in time investment.
What does SIP calculator indicate
A SIP calculator enables you to figure out how your periodic investments can be worth a lot after a long time. With the help of details such as the monthly or annual investment amount, the rate of return, the time investment horizon and SIP frequency, you can input the information. The calculator will show the total value of your investment at the end of your horizon.
It also proves the rupee cost-averaging method that can result in more units in the long term. This allows you to invest a sum that you are confident in and can afford regularly, thus, you don’t have to worry about the markets’ timing. For long-term goals like retirement, SIPs are the best and the way of life as it is very disciplined.
What is Lumpsum Investment?
On the contrary, a lump-sum investment is about putting a big amount into the funds or stocks at one time. This means that you can put up a higher initial capital and thus get higher returns if the market does well in the coming years.
Tools like a lumpsum calculator will enable you to analyse such investments in a better way.
What a Lumpsum Calculator Discovers
A lumpsum calculator lets you put in a particular sum of money you want to invest and the projected rate of growth to see the final corpus at the end of the investment term. The lumpsum calculators also provide you the facility to compare with the SIP performance.
Say you invested Rs. 5 lakhs now or Rs. 10,000 per month for 5 years SIP at 12% expected returns. The lump sum calculator would reveal that the one-time investment would have a higher rate of return with the same inputs.
Past performance reveals that SIPs are better in the area of compounding and volatility averaging which is helpful for goal-based long-term investing. Lump-sum investments have bigger market timing risks.
Thus, if you have a lot already saved up, it would be a good idea to put some into a lumpsum investment which will benefit from the current valuations. Nevertheless, the one to follow the SIPs is the one that is aware of the risk management and investment discipline.
Select the Kind of Mix that is the Most Appropriate for You.
Actually, in real life, most portfolios are composed of both lump sum and SIP investments. According to your financial capabilities, tax planning, and risk appetite you can choose the proportion of lumpsum to SIP amounts. Online SIP & Lumpsum calculators can be used as the initial step to know how much money you need to save for your future, but you should also consult your financial advisor for the same.
At the time when you are old, SIPs will have already gathered a large sum of money. However, lump sums are also the sources of the pros of large capital appreciation when the markets are favourable. Thus, using both ways as per your needs makes sure you get the best of equity investing in a balanced way.
