Ask this question to any investment professional and the majority will come out in favor of the investment option of a Monthly SIP above the yearly. The reasoning behind the preference given to monthly SIP needs to be examined critically.
This is why Monthly SIP is better than Yearly SIP
- Disciplined Saving: Best for salaried class, fixed monthly income people as fixed installment goes to the mutual funds on a stipulated date. In yearly SIP a lump sum amount needs to be deposited which might create pressure on the investor.
- Rupee-Cost Averaging: The SIP route allows investing in the markets during higher levels as well as lower levels, and ensures a weighted average return over some time. If you opt for yearly SIP then you shall completely lose on the benefits of averaging and, thus, not be able to capitalize on market fluctuations.
- Power of Compounding: A SIP enables you to reap the benefit of compounding as you get to earn returns on the returns generated by your investment. This cannot be availed if you select a yearly SIP route as you will be investing only once a year.
It is true that most investment planners will ask you to go along with monthly SIP but a lump sum yearly SIP investment can also be recommended when due to any severe event or a crisis, the market sees corrections.
For example, now the Coronavirus lockdown has brought the market valuations level to a very low & attractive level, and therefore, investing a lump sum at such a time will surely help create long-term wealth.
Risk comes from not knowing what you are doing- Warren Buffett
The bottom line is that as an investor you should be aware of all pros and cons and be able to make an informed decision. And whatever route you select, make sure to stay invested for the long term as it does not work efficiently for a time horizon of fewer than 5 years. If you are still confused and don’t want to take a blind risk. Then you may get in touch with the Fincart Team today. To seek good investment advice.
Also Read: Best Long Term Investment Plan In India
