Which is the best option between SIPs and lump sum? I have seen lump sum investments beat SIPs over the long run. What would be your suggestion?
-Anonymous
It is an entirely a matter of picking a time when you say that lump sum beats SIPs. For most individual investors, it is downright dangerous to be investing a large amount of money in lump sum in the equity markets because the risk of mis-timing your investments and catching a market peak deprives you of benefiting from the market for many years. If someone gets started through a lump sum investment and ends up losing money, he would keep away from equities. Hence, we suggest that, even at the cost of losing an opportunity, one should stagger their investments. For example, if you have Rs 5 lakh to invest, we would suggest that you spread it over at least 6-8 months, because if the market goes down by even 15-20 per cent after you have made your lump sum investment, you will start looking at equities in a very negative way.
This article was originally published on February 24, 2012.
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