SIP vs Lump Sum - Which Is Better? - Franklin Templeton IndiaFeb 18, 2020
s IP or
betterthere are some things that will always be confusing and you just can't figure it out and one thing most people are confused about is the best way to invest if you invest systematically or in
lumpsums for yourself to get higher yields face that question yours is fine a perspective suppose both your neighbor and you want to grow flowers in their respective gardens for a period of a Europe both go to the market together but while they buy all their seeds and plant them in one time, he decides to buy and plant only a few each month and the price of seeds remains constant throughout the year, so your garden is more likely to be full of flowers at the end of the year, obviously the garden that gave all seeds a full year to grow and flower will be the clear winner here, but how about a more practical scenario for this theory?
On December 31st on the other hand your wife invests Rs 30000 every quarter now both of you start investing in bank deposit on January 1st but while you invest in fixed term deposit your wife invests in recurring deposit
whichdue in exactly one year, in both cases the interest compounds well quarterly, even though you both invested the same amount after one year, you will have accumulated a larger sum than your wife, this is simply because although the entire amount was invested for all of Europe your wife invested 30,000 for the year 30,000 for nine months 30,000 for six months and 30,000 for just three months, so the average investment period is really quite short, allowing you to earn less interest on you, even if the wife could have negotiated a higher rate of 9% per year, the accumulation would not be enough. she, even at 10% and 11%, wouldn't be on par, it's only at the rate of 12 on 70% that the cumulative sums would be equal, that's a big difference to her creator, this says a lot about giving time to investments to grow, no Not so, although there are always two sides to a coin back to your garden, let's imagine that seed prices fell every month starting in month two and continued to fall until the end of the year since his neighbor bought seeds. the same value every month as the price went down you got more seeds of the same price on the market now you have a lot more seeds to plant every month go now which garden is likely to look fuller at the end of the year yes exactly imagine you he chose to invest his capital in a stock mutual fund at a face value of Rs 20, therefore he gave it 6000 units.
His wife also invests in the same plan and received 1,500 units on January 1. On April 1, the enemy was 18 rupees, giving him one thousand six hundred and sixty. six point sixty seven units rupees 15 on the first of July giving you two thousand units and seventeen rupees on the first of October giving you one thousand seven hundred and sixty four point seventy one units now fast forward to December 31st when you get your statements anywhere view of rupee twenty two the value of your investments has now risen to rupee one lakh thirty two thousand in a year that is 10 percent return but expect your wife who invested in the same plan as you now you have a much larger amount but you invested a lot albeit longer so how did this simple happen at three different points during the investment period?
His wife was able to invest at a lower sailing value than you did earlier in the year, thus benefiting from a lower average cost for the year. His wife managed to buy 6,930 1.37 units compared to the 6,000 units she bought at the beginning of the year, moreover, the purchase price of each unit was 20 rupees, while its average cost for a year was 17 ,31 rupees. This concept is called the average cost of rupees. Makes sense. and this is only one side of the story in the above example the nav kept falling during the reversal period but what if the NE went up?
The story would be very different, wouldn't you be a lump sum investor at first? you would have done much
better, there is even a third angle to the story: if you had withdrawn all your investments on October 1st, you would have received a higher sailing value than on December 31st, therefore the value of your investment would be rupees one like eighty thousand compared to rupees one lakh sixty eight thousand it is not easy to decide which is better if 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 the 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 far as choosing between whether P and the lump sum don't stress now you know the difference and know the benefits of each, there is no right answer just Think about your situation and your goal before deciding whether to plant all your seeds at once or a few at a time.
Either way, you will have a garden full of flowers. We hope you enjoyed watching this video. We will help you learn about different investment concepts. You can also write us with your comments to the editor. Investments in Templeton com mutual funds are subject to market risk. Read all documents related to the scheme carefully
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