POSTED BY November 8, 2012 10:14 pm COMMENTS (5)ON
Investing Rs25,000 in a fund directly at a ONE go in a Mutual fund and investing through SIP Rs500 every month for (50 months) what is the basic difference between all them in terms of Investment return.
And can I do SWITCH among my funds if done through SIP after ONE year.
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5 replies on this article “Mutual Fund Invstment”
Dear Radhe, when you do have money with you to invest & also the time (15-20 years), lump sum ‘ll score over SIP. SIP is the vehicle mainly for continuous investment if one does not has all the money on day one to invest.
With reference to your question on “Investing Rs25,000 in a fund directly at a ONE go in a Mutual fund and investing through SIP Rs500 every month for (50 months) what is the basic difference between all them in terms of Investment return.” – The difference is the “period of investment”.
The concept comes from “Time Value of Money” which states that, Rs. 100 with me today is worth more than Rs. 100 a month later. The reason being Rs. 100 that I have now can be put in a bank FD and in 1 month would become Rs. 101. (Assuming the bank gives you a 12% interest). With reference to your question , Suppose Rs. 25000 lumpsum investment is done for 5 Years (60 Months), then the entire sum is given 5 Years to grow, while in a SIP investment only the first investment, Rs. 500 will have 60 months to grow, while the last investment will have only an year to grow. So unless a catastrophy happens, you will earn higher total returns in terms of the total rupees earned(Total Amount mentioned by you) in the 25K lump sum investment. Another eg. could be money invested in FD for 1 year and a money invested in recurring deposit for 1 year, invested monthly. In terms of absolute rupee returns, FD will give you a higher return
The reason why SIP investment is preferred is because it takes care of the volatility, the highs and lows of the stock market, which is called as the systemic risk is taken care of. Let me know if it answers your question.
Now the main question ? What is good One time investment or SIP ? The answer is both are good in different conditions , and it depends on your Risk appetite too . When you don’t have clear indication of trend and are not sure where markets can go , the best idea is to invest through SIP . That will save you from volatile markets and small down moves too .
SIP will definitely miss out on returns in BULL markets . But it will work best in Volatile markets and falling markets .
SIP is not a way to avoid losses , its a way of investing, where you feel more disciplined and average your cost of investment of long term . The examples i have taken were biased because of the idea i wanted to communicate . Anyone who did one time investment in 2004 would have made more money than someone with SIP , till 2007 at least because of the rising markets .
In SIP rupee cost averaging saves you from volatility.
BULL trend good for lumsum and SIP good for volatility.
there difference is how luck you will be in shortterm. But for long period(10-15 year) lumpsum might make sense or a bit conservative of 25000 over 6 months will be good.
But 25000 as 500 for 50 months in SIP is waste if you have the money in hand already.
You can redeem units and buy another MF
other than that switch can be done withim scheme (growth/dividend/divreinvest)
Hey Zion not at all clear what you wrote.
“””””But 25000 as 500 for 50 months in SIP is waste if you have the money in hand already.
You can redeem units and buy another MF”””
I want to know at the end these TWO route of investing (Rs25,000 at once & Rs500 SIP) will they give me the same AMOUNT or same RETURN.