Are the returns on lump sum investments higher than returns on systematic investment plans (SIPs)?
Returns on lump sum investments are more volatile since the NAV at the date of investment and redemption determines the investor’s return. These cannot generally be timed and therefore the investor runs the risk of a high NAV on the date of investment and a low NAV at the time of redemption. For SIPs however, since the investment is made periodically, the volatility is diversified or averaged across different dates of investment and therefore returns tend to be more stable. Therefore while there is no rule that says lump sum returns would be higher than SIP returns, the latter do tend to be slightly lower due to the effect of averaging. The corresponding risk also tends to be lower for SIPs. 12. What is the difference between institutional and retail options? The primary difference between these is the quantum of amount invested by the investor. Institutional schemes are for investors investing relatively large sums, generally over Rs.2 to 5 crores. They have a higher rate of NAV appre
Returns on lump sum investments are more volatile since the NAV at the date of investment and redemption determines the investor’s return. These cannot generally be timed and therefore the investor runs the risk of a high NAV on the date of investment and a low NAV at the time of redemption. For SIPs however, since the investment is made periodically, the volatility is diversified or averaged across different dates of investment and therefore returns tend to be more stable. Therefore while there is no rule that says lump sum returns would be higher than SIP returns, the latter do tend to be slightly lower due to the effect of averaging. The corresponding risk also tends to be lower for SIPs.
Related Questions
- If the Overall Rate of Return is designed to give credit for investment returns in 2009 why is it 0.5% p.a. for plans issued after 20 July 2000?
- Rather than making a lump sum investment, could I make regular smaller investments into an investment plan?
- Are the returns on lump sum investments higher than returns on systematic investment plans (SIPs)?
