The propensity to invest in mutual funds is gradually rising with more people inclined to earn returns from the market in the face of rising inflation. However, the mode of investment, viz., lumpsum versus systematic investment plan (SIP), is always debated with some investors preferring the former over the latter and vice versa.
Data by the Association of Mutual Funds in India (AMFI) reveal how the mutual fund industry is growing with nearly five crore SIP accounts. Details underscore how 26 lakh new SIP accounts were registered in January 2022 alone, thus, highlighting the growing popularity of SIP investments. The AMFI data also suggests how most of these SIP assets are less than a year old though there are many SIP investments that are more than five years old.
Why invest in SIPs?
Investment through SIPs is deemed the most convenient way of parking money in mutual funds. This investment mode is preferred by most who wish to invest small sums regularly into mutual funds of their choice. Moreover, one can choose from among weekly, monthly, quarterly, or bi-annual SIP payments. This means that every time there is a SIP investment, new fund units at the prevailing net asset value (NAV) is credited to your mutual fund portfolio.
The rupee cost averaging via SIPs is another factor that will lend you a positive edge to your investment journey. By investing with SIPs, you can benefit from a low average purchase cost. This enables you to accumulate more units at lower market prices. This is especially helpful when the market is going through a turbulent phase with the frequency of lows exceeding the highs. Investors who are able to relate to the benefits of rupee-cost averaging via SIPs are able to build a sizeable corpus over the period. However, during the bullish phase, SIP investments fetch a lower number of units.
You can start investing in a mutual fund by paying SIPs as low as ₹500. The minimum investment allowed has prompted the popularity of SIPs in many cities. Though the average investment amount via SIPs may be lower, many investors from small cities have realized how they can build a large corpus by investing regularly in small amounts.
Lumpsum versus SIPs
Not all investors may be in favor of investing equal or increasing amounts with regular frequency. Those with a higher investment amount and risk appetite prefer to park money in lumpsum investments. The volatility of the market, first due to the pandemic and then to global incidents, has had its effect on the number of lump-sum investments. Comparatively, SIP investments have been steadily going up with SIP flows being more than ₹11,000 crores in January 2022 alone.
Mutual fund investments are now more sought after than before. Over the total investor assets managed by the mutual fund industry, more than 15 percent of them are accounted for through SIP investments, thus, explaining the continued investor flows in the mutual fund sector.