Can I change SIP to lump sum?


Investment can be defined as the act of allocating funds to an investment plan. This action is taken to earn extra income. People, usually, professionals, want to earn extra revenue so that they can take care of day-to-day expenditures after quitting the job market, i.e., after retirement. When it comes to investment plans, you will come across two options. One option is to deposit your money in a bank account. One reason to open a bank account is that it is a safe investment option. For instance, if you were to sign up for a recurring deposit, i.e., RD with the bank, all that’s required of you is regularly deposit your money in the account. Over time you will end up accumulating the sum of your investments. But it is also important to make note of the fact that bank accounts will not offer higher returns. That’s where market investments step in. As the name suggests this variant of investment is made towards the market. Moreover, market investments are known for offering higher returns against investments. This is the reason why people are known for preferring market investments in general.

One of the prominent examples of investment schemes that direct fund allocation towards the market is mutual funds. In these schemes, an asset management company (AMC) after collecting money from a group of investors, places it in a fund. As time passes and enough money is collected in the fund, it is used to purchase different financial securities. The returns generated through the mutual fund scheme are then proportionately divided among the different investors. To sign up for these schemes, you need to contact an AMC. After signing up for the scheme, you will be required to choose the mode of investment. When it comes to the mode of investment, there are two options namely lump-sum investment and a systematic investment plan (SIP).

Lump-sum investment:

Under lump-sum investments, you are expected to make a one-time payment for your mutual fund investments. In case you are considering signing up for the lump-sum investment option, you need to make sure that you have the required amount for investment at your disposal. In case you don’t have access, you need to hassle to arrange for the funds. But despite its drawbacks, it is important to note that if you find this mode convenient, there is a benefit of a lump-sum payment for mutual fund investment. The benefit is:

  • They are a one-time payment:

In case you happen to be a self-employed investor without a consistent source of income, you should consider investing in lump sum quantities. Systematic investment plans are known for requiring a predetermined amount to be deposited on a regular basis. If you are an investor who relies on seasonal revenues, you may find it hard to keep up with the payments of a structured investment plan.

Systematic investment plans:

Systematic investment plans (SIPs) are a mode of investment in which you can allocate your funds to the mutual fund scheme periodically. Meaning, that they are different from lump-sum investments in which you are required to invest the entire amount in one go. Investments in SIP can be either monthly or semi-annually. By steadily investing in this manner, it can become easier to meet your financial goals. When you invest in your mutual fund scheme with the help of a SIP, you can invest a fixed sum of money regularly. After determining the investment tenure and frequency, you can automate your investments. That can be done by leaving a standing instruction to your bank to transfer the amount directly from your bank account into the mutual fund SIP of your choice, on a fixed date. Here are some of the benefits of a systematic investment plan (SIP):

  • It is possible to enjoy the benefits of the power of compounding:

A reason to sign up for these plans is that they allow you to take advantage of the power of compounding. The revenue created through the mutual fund scheme gets reinvested. With the passage of time, this action results in a snowball effect, increasing your income manifold. The feature of compounding is very beneficial for long-term wealth creation.

  • These plans are extremely flexible:

In a systematic investment plan, you have the flexibility to determine things like the investment amount, interval of the SIP, and duration. Furthermore, their investors also have the option to change the amount, pause or stop the SIP.

Is it possible to change the mode of investment?

As mentioned above, SIP is known for offering flexibility. So, in case your financial situation changes, you have the option of pausing your investments or even changing your mode of investing. So, it is possible for you to change your mode of investment. Also, in case you experience a windfall, you can opt to invest the entire amount at once and then continue with SIP payments.

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