Can You Skip a Month of Systematic Investment Plan (SIP) in Mutual Fund Investments?
Absolutely, you can invest in mutual funds without committing to a Systematic Investment Plan (SIP) every month! The decision between SIP and lump sum investment should align with your financial goals, risk tolerance, and market outlook.
Flexibility with Mutual Fund Investments
Most accounts are set up with auto-debit standing instructions, but if you haven't done so, you can skip your SIP as per your wish. Skipping SIPs for one or two months has both advantages and disadvantages. On the positive side, it allows investors greater control over their cash flow during tight financial periods. However, pausing SIPs can lead to missed opportunities for rupee cost averaging, which mitigates the effects of market volatility over time. Additionally, halting SIPs may disrupt the discipline of regular investing. Therefore, the decision to skip SIPs should be made thoughtfully, considering the potential impact on long-term financial goals.
Understand SIP and Lump Sum Investments
SIP is one type of mutual fund investment in which a fixed sum is invested regularly at specified periods, often monthly. The other option is a lump sum investment, where you invest a large amount of money in one go rather than spreading it out over regular intervals. Both strategies have their own advantages and disadvantages, and the choice depends on your financial goals, market conditions, and risk tolerance.
Comparing SIP and Lump Sum Investments
Can you invest in mutual funds without a SIP every month? Yes, you can. SIP is a strategy for investing a fixed amount regularly, often monthly. Meanwhile, a lump sum investment involves investing all of your money in one go.
SIP vs. Lump Sum: Which Is Better for Investing
The choice between SIP and lump sum investments depends on the current market conditions. The market may correct immediately after you invest your lump sum money. In this case, using the SIP route would have resulted in a lower average buy price for an index fund unit. Conversely, if a market is consistently growing, as observed following the COVID-19 crash, lump sum investments would have outperformed SIP investments.
To evaluate them in the long run, a simple exercise was performed analyzing NIFTY 50 results under two scenarios:
1. Returns if you invested a lump sum at the start of the period. 2. Returns on a monthly SIP throughout the same time.The conclusion was a mixed result: SIP outperformed seven of the 14 periods we examined, while lump sum provided a higher rate of return on seven occasions.
Key Takeaways
Both SIP and lump sum investments are essentially investment methods, and neither one guarantees a better outcome than the other. If you have the funds, it is preferable to go with the lump-sum approach because you can build a larger corpus. However, if you have a steady income and want to build a larger corpus, SIP is a better option.
Stay updated about the market as it is constantly changing. Happy investing!