Indian retail investors pump in nearly Rs 5,000 crore into equity mutual funds through the systematic investment plan (SIP) route every month. At last count, there were over 1.52 crore SIP accounts in the country, reflecting the growing popularity of this mode of investment.
But do SIPs really work better than lumpsum investment? Well, conditions apply.
Historical data shows in a rising market, lumpsum investment can actually earn slightly higher return than the same amount invested through the SIP mode. The hitch here is the former exposes you to a higher risk of losing your money while the latter actually protects that downside much better.
The equation alters drastically in a falling market, when SIPs tend to do a much better job with wonderful risk coverage due to cost averaging.
