# SIP vs Lump Sum - Which Is Better? - Franklin Templeton India

s IP or

#### lump

sum## which

is#### better

there are some things that will always be confusing and you just can't figure it out and one thing that most people are confused about is the best way to invest should you invest systematically or in#### lump

sums for you to get higher returns face that question already okay yours a perspective let's assume that both your neighbor and you want to grow flowers in your respective gardens over a period of one Europe you both go to the market together but whileyou buy all your seeds and plant them at one shot he decides to buy and plant only a few every month and the price of the seeds remains constant throughout the year so

## which

of your gardens is more likely to be full of flowers by the end of the year well obviously the garden that gave all the seeds a full year to grow and bloom will be the clear winner here but how about a more practical scenario for this theory okay yours one say you invest a#### lump

sum amount in your savings bank account ofrupees one lakh twenty thousand on December 31st on the other hand your wife invests rupees 30000 every quarter now you both start investing in a bank deposit on January 1st but while you invest in a fixed deposit your wife invests in a recurring deposit maturing in exactly one year in both cases the interest is compounded quarterly well although you both invested the same amount after one year you will have accumulated a larger sum than your wife this is simply because while your entire amount

was invested for the entire Europe your wife had 30,000 invested for the year 30,000 for nine months 30,000 for six months and 30,000 for only three months so the average period of investment really is quite short earning her less interest in you you see even if the wife had been able to negotiate a higher rate of 9% per annum the accumulation would not catch her even at 10% and 11% she wouldn't be on par it's only at the rate of 12 on 70% that the accumulated sums would be equal

that's a huge difference for her maker this says a lot about giving investments time to grow doesn't it hold on though there's always two sides to a coin back to your garden let's imagine that the prices of the seeds fell every month starting from month two and continued to fall right up to the end of the year since your neighbor bought seeds over the same value every month as the price fell he got more seeds from the same price from the market he now has way more seeds to plant

every month whoa now

## which

garden is likely to look more full at the end of the year yes exactly now imagine you opted to invest your principal in an equity mutual fund at an nav of rupees 20 therefore giving you 6,000 units your wife then also invests in the same scheme receiving 1,500 units on Jan 1st on April 1st the enemy was rupees 18 giving her sixteen hundred sixty six point sixty seven units rupees 15 on July first giving her two thousand units and rupees seventeen on October firstgiving her seventeen hundred and sixty four point seventy one units now fast-forward to December 31st when you get your account statements at an any view of rupees twenty two the value of your investments has now grown to rupees one lakh thirty two thousand in one year that's a 10 percent return but hold on your wife who invested in the same scheme as you now has a much larger amount but you invested for much longer though so how did this happen simple at three different points during the

investment period your wife managed to invest at a lower nav than you did at the beginning of the year thus benefiting from a lower average cost over the year your wife managed to buy six thousand nine hundred and thirty 1.37 units versus the six thousand units you bought at the beginning of the year also your price of buying each unit was rupees twenty whereas her average cost over the one year was rupees 17.31 this concept is called rupee cost averaging make sense and this is just one side of

the story in the previous example the nav kept falling through the investment period but what if the NE we were to rise the story would be very different wouldn't as a

#### lump

-sum investor at the beginning B's investments would have done much#### better

there's even a third angle to the story what if you would drew all your investments on October first you would have received a higher nav than on December 31st thus the value of your investment would be rupees one like eighty thousand asagainst rupees one lakh sixty eight thousand it's not easy deciding

## which

is#### better

is it#### lump

sum strategies work if an investor manages to invest when the markets are constantly rising systemic strategies on the other hand work#### better

when prices are going down with opportunities to invest at lower levels the deciding factor between the two will be the frequency of investments and when you withdraw your investments as for choosing between si P and#### lump

sum don't be stressed you knowthe difference now and you know the benefits of each there's no right answer just think about your situation and your objective before you decide whether to plant all your seeds at one go or little at a time either way you'll potentially have a garden full of flowers we hope you've enjoyed watching this video watch more and we'll help you learn about different investing concepts you can also write to us with your feedback at editor'

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