If you make a lumpsum investment when the market is down and the market starts going up soon after that, you will make a lot money on your investment
13-Oct-2015 •Research Desk
Is it true that SIP is always better than a lumpsum investment? If you invest in a lumpsum, will you always end up making a loss? Since the current market has been very bearish, will a lumpsum investment results in a loss in the the long run?
- Shalin Bhansali
It is not true that a lumpsum investment will always end up in a loss. For example, if you make a lumpsum investment when the market is down and the market starts going up soon after that, you will make a lot money on your investment. Even more money than investing through a Systematic Investment Plan (SIP).
However, the trouble is nobody knows when the market is at its bottom. So the chances of investing at this level are very remote. That is where SIP comes in. The logic behind investing via SIP is that since we can't predict the market, why don't we invest regularly and benefit from the cost averaging. When you invest regularly in the market irrespective of the market conditions, you end up getting more units when the market is down and less units when the market is up. This will result in averaging of your holdings. This will help you to enhance the returns. Also, investors tend to get nervous about the market and it influence their investment decisions. SIP helps them to avoid this dilemma.
For more details, read: Are SIPs always better than lump sum?