This is a burning question in the minds of many middle-class young investors today. But why is it so? Why does it become difficult to distinguish what is parctically a suitable investment option? Well, the media today is filled with “fin-fluencers” who do not really care who are their audience. They like to create content for the general audience. We as an audience fall into the trap of haf-hearted content creators. Some who are really unfortunate fall into the trap of fake millioanres flooding their insta with lamborgini pics.
Let us first understand what is SIP and Lumpsum
SIP and Lumpsum
Well, both are ways to invest. The difference is quantity and timing. SIP is Systematic Investment Plan. This method of investing makes it automated for you to invest a portion of your money into the equity markets (considering you do not invest into debt and still expect to be above inflation in India) every month on a date selected by you. The amount can be modified, SIP can be paused or cancelled in between also.
Lumpsum, as the name suggests in a way of investing when you can put in a chunk of money at one go. This is not automated form of investing. You can invest even Rs 1000 to Rs 10000000000 also, but these are done manually and not on a recurring basis.
Which one is better – SIP or Lumpsum?
Well, if you ask me, for a middle-class investor, SIP always works out. The reason is simple, you really don’t have to bother about the markets or the monthly hassle of investing (even though investing today is just one click of a button away). SIP brings in a sense of discipline which is crucial to wealth building. The biggest disadvantage of Lumpsum investing in the life of a middle class is the availability of a reasonable amount of investable corpus. Its should be more than 1 lac at least. Otherwise, doing a 10k to 50k investment in a sporadic manner will add on value in the long term.
What should be the scheme combination in SIP?
My SIP portfolio has 4 schemes only : One Small Cap, One Flexi Cap, One Multicap and One Large and Midcap. The SIP that i currently have is for a 25 year tenure which is basically building my retirement corpus. It is important to understand that SIP is a secret weapon – a silent portfolio creator. Hence having the right set of schemes is also important.
Goal based Investing through SIP
SIPs are brilliant when it comes to goal based investing. Lets say that you want to buy a car which costs you 10 lacs today. After 5 years it will cost you 13 lacs and above taking 6% as the inflation rate. How do you plan to get that car? Through EMI right? That is what most middle class do! Instead, if you do a monthly SIP of of 11,000 per month with a 10% annual step up into small cap or mid cap schemes giving you a CAGR of 20%, you can easily make your money required for getting that car. How amazing is that!
For a middle class investor, it is very important to understand, that compounding takes time. Hence, investing is not a short term affair. The idea is to grow your wealth which is volatility proof and not castles in the air. The idea is to be wealthy and not just rich.
