Lumpsum or SIP, which is better? | CA Rachana Ranade - YouTube

Hey folks!!! CA Rachana Ranade here and I  welcome you all to a very interesting video which  

we are going to focus about what do we mean by  SIP? what do we mean by Lumpsum? We are also going  

to discuss about what are the benefits of each?  And how do I decide which one is suitable for me? 

So let's start by understanding what is an SIP?  Well I could have chosen the path of telling you  

the definition of SIP and then explaining you word  by what, but I think let's put it in a very simple  

format okay I am sure many times it happens that  parents give some kind of pocket money to their  

children okay, the child then chooses to save  a part of their pocket money and chooses to  

you know put that or save that in a piggy bank  eventually over the period of months as and  

how he says more and more the piggy bank will  be full and once it is full you will ideally  

take that entire money and put it in a bank  okay so what that child did? was it an SIP?  

That was not a systematic investment plan as such  I can say. That was a systematic saving plan of  

saving every single month and the entire amount  from that Goodluckh which was put in the bank at  

one shot, let's say in an FD that was a lumpsum  investment. I will give you another example I am  

sure you might have seen that uh many a times the  the bread owner of the family gives some part of  

his income to the homemaker right and many times  she prefers to keep or save some money in uh some  

kind of box , in some uh dubba okay so Marathi  people will understand this better I guess,  

exactly right so what what does the homemaker do  every single month she set aside some money which  

her husband is giving her put it in some cupboard  or in some dubba and then eventually when it  

comes to a specific amount a decent enough  amount then she'll go and put it in the bank  

that small amount that she was keeping aside  monthly was again an example of systematic  

saving not systematic investment and the lumpsum  amount that she put in the bank let's NFD that was  

a lumpsum investment but please understand  what are the drawbacks in both the cases.  

The money is neither growing in the piggy bank  nor is it growing in that dubba in which he's  

keeping the money right so what could have  been a better way a traditional better way  

could have been putting that amount of money say  100 rupees every month or 500 rupees every month  

in a recurring deposit could that have been a  simple explanation of a systematic investment plan  

yes because that happens systematically  that happens over a specific period of time  

the same thought process if I apply for a mutual  fund wherein I invest some money say 500 rupees  

every month in a mutual fund scheme that is  typically referred to as an SIP in a mutual fund.  

Now let's understand what are the benefits of an  SIP the very first one is rupee cost averaging  

I will give you a very simple example for that  assume that you invested your first chunk in a  

mutual fund let's say unit price of that mutual  fund or the NAV was 100 rupees you invested in  

that, next month the NAV of that same unit of  mutual fund came down to 80 rupees and you also  

invested the same amount at that point also so  what is your average investment it is 100 plus 80  

divided by two okay assuming you purchased one one  unit right so what happened even when market was  

100 you invested even when it was 80 you invested  and that is what we exactly mean by the term rupee  

cost averaging simple enough right. Now the second  one is disciplined investing so what do we mean by  

discipline investing I must have a discipline that  come what may every single month I have to keep  

some aside from my bank account and investing  somewhere now as discipline investing is important  

something known as discipline learning is also  very important. Now how do you do that whenever  

you are watching any video of mine if you want  to be a disciplined learner you have to first  

pause the video then hit the like button and then  play the video that is also called as disciplined  

learning every single video not every single  month okay every single video if that happens  

then you'll be a disciplined disciple or  disciplined student of mine okay. Anyways  

I hope you have understood what is a disciplined  investing every single month you have to keep them  

an amount aside these days you can also give  standing instruction to the bank okay wherein  

every month some amount will be auto debited  from your bank account right and the third  

one very important is flexibility means what uh if  something goes down south okay just an example can  

be of corona, so assume that you are doing an SIP  of let us say 20,000 per month and unfortunately  

because of corona you had to face a salary cut  now with the cut in your salary you are not able  

to you know invest 20,000 per month. Can you pause  your SIP for some time? YES. Can you stop it over  

a longer duration? YES, so that is one very  important benefit of SIP which is nothing but  

flexibility. Now let's try and understand when to  choose an SIP or basically how do I decide whether  

an SIP suitable for me or not? Okay the very  first thing is that if I am a person who earns  

a regular source of income simple example salary  then it is really beneficial for me okay because I  

know a specific amount is going to get credited to  my bank account every month and out of that I am  

going to save and invest every single month okay.  Number two very important is that all those people  

who earn somewhere in the bracket of let's say  ten thousand, fifteen thousand, twenty thousand,  

every single time they feel that anyways I am  earning only ten thousand, I am earning only  

fifteen thousand when will I be able to make a big  investment so for them the trick could be start  

small and gain big over a period of time okay so  for those even if your salary is small that will  

not matter if you are starting your investment  journey through an SIP okay. Third thing this SIP  

works really well in a falling market remember  my example of investing at 100 level then it  

at 90 level let's extend this example further  then you invest at 80 then at 70 then at 60,  

whatever right so if it is going down and  down every single time if you are investing  

your average cost will automatically be lower so  SIP will always work in a falling market. Fourth  

when can it be an ideal time to invest in an sip?  I think you at least have to start it rather than  

you know delaying your decision that it will be my  new year resolution or something like that start  

as soon as possible it will anyways work well  in the longer term but if I am using the word  

longer term then how much many people ask me can  I do SIP for one year? for one year ideally if  

you are talking about SIP in an equity mutual  fund then one year is a very small time frame  

ideally if you ask me five years can be an ideal  time frame five years or more can be a good one. 

Now let's move on with Lumpsum Investing.  What is lumpsum? Exactly opposite of SIP  

investing all at one shot so there are some people  who want to become an expert stock market expert  

all at one shot and they go on to my website  rachanaranade.com and they say oh my god seven  

courses at one time and they want to do all seven  courses at one shot and you know at one point of  

time it can be like oh my god there is too much to  learn? instead of that their interest might drop  

out. Instead of that you can have a systematic  investment plan. You can start early you can  

invest your time and then prosper and that's  how you can systematically learn one course  

every month and over a period of seven months you  will surely invest very nicely in stock market and  

I am sure investing in this knowledge will fetch  you the best returns right so with investing  

Lumpsum versus investing in SIP I hope you have  understood that all at one shot is like lumpsum  

slowly steadily a specific amount every month  is like SIP investing right. Now what are the  

benefits of lump sum let's understand very quickly  the very first one is convenience so for example  

if you have an SIP of let's say 10,000 rupees on  the 10th of every month okay and assume that you  

get uh some performance bonus on the 15th are  you going to wait till the next 10th no can you  

invest this entire bonus at one shot exactly  yes that is the benefit of lumpsum investing  

convenience you are not tied to a specific date  right. The second one is timing. The market so  

if you have sufficient enough knowledge about the  market and if you are able to understand okay this  

is the support level for the market okay ideally  market has hit the bottom ideally from your market  

is going to bounce back then this can be a level  when you can invest a chunk of your investment all  

at one shot. A simple example is that a person who  might have invested a large sum of money in March  

2020 when market was almost at its lowest point  I am sure that person might be like ah as on date  

right so that is exactly what we mean by lumpsum  investing at a lower point. In fact one more quick  

example is that on 22nd November when the markets  corrected by a huge point then at that time many  

people were like oh my god what to do shall I sell  off my investment?, that was the time when I did a  

live stream and I told my viewers that no need to  panic market is at a good support level right now  

and if someone might have invested at that point I  really that person should be getting a good return  

over a longer period of time right so with this  I hope you have understood what are the benefits  

of lump sum investing as well. Now question  is when do I choose some mode of investment?  

If I am a person who is not a salaried person I  am a businessman I receive a chunk of money after  

completing an assignment assume that I am in a  film line and I am a director of a movie and I get  

a big chunk of money after the movie is completed  should I go ahead with SIP? For me maybe lumpsum  

can be a better option right. Second one even if  you are a salaried person and as I mentioned you  

got some performance bonus that can be one option  of doing a lumpsum investment. Third for what time  

should I keep my money invested even if I have  done a lumpsum investing? Again answer remains  

same ideally a period of five years so time  wise whether it is SIP or whether it is lumpsum,  

ideally the time for which you should stay  invested is at least a period of five years. But  

one very important difference is that when will,  which pattern of investing work? SIP generally  

works in a falling market whereas Lumpsum  investing generally works in a rising market. 

Now let's try and bust the myth of SIP/Lumpsum  which one is better? Now if I ask you which one  

is better I am sure your answer is going to be  obviously SIP. Now let's try and analyze whether  

can Lumpsum be better than SIP? In some case or  the other so for that what you have to do you have  

to just visit my website rachanaranade.com and  in that Click on financial calculators, once you  

click here you will have an option either Lumpsum  calculator or SIP calculator I am just clicking on  

a lumpsum calculator right once you click a  separate tab. You will be opened and here what  

I have done is I have inserted certain values like  assume that I am going to invest 6,00,000 rupees  

at one shot okay and assume that the rate of  interest is 12% okay assume that this is an index  

fund or something like that wherein I believe that  I will be getting a return of 12% on an average it  

need not be interest as such okay so 12% return I  am expecting and number of years that I am going  

to stay invested is five years remember I have  told you that ideally if you are investing in  

equity five years should be a minimum time frame  that we should talk about what will be the future  

value of this six lakh invested at twelve percent  rate over a period of five years the future value  

will be 10.57 lakh rupees okay now instead of six  lakhs lumpsum investment if I decide I am going to  

invest 10000 rupees every month so for one year it  will be one like 20,000 and if I were to do that  

systematically for a period of five years so one  like twenty thousand into five that will take me  

to six lakh rupees in simple words if I am going  to invest 10,000 rupees from assume my age is  

30 right now uh and you assume 30 here and if the  retirement age retirement of the goal basically is  

35 and again same thing 12 percent everything else  remains constant then this ten thousand invested  

on a monthly basis same amount of six lakh  invested future value will be eight lakh twenty  

four thousand eight sixty four so what was the  future value when invested through an SIP route  

it was eight lakhs something but invested lumpsum  was 10.5 lakhs now why did this happen? It is very  

logical in a lumpsum you invest six lakh at one  shot and this gets on compounded for five years  

okay whereas in an SIP what was invested on month  one was just 10,000 so at one point starting was  

six lakh on the other hand starting was only ten  thousand and in an SIP the last investment which  

you did at the end of the fifth year 10,000  rupees that was invested only for one month  

and that is the reason why you will see this but  does this mean that always lumpsum will be better  

or could there be multiple case scenarios if you  are interested in that we are going to discuss  

two different scenarios in the next section of the  video. Now let's take this scenario. Scenario one  

is an initially bearish market what I have done  for initially bearish is that out of the five  

years investment time frame I have considered that  this specific mutual fund whatever I have selected  

that will go down by one percent on a monthly  basis for how many hours for four years and in  

the last year it will go up by two percent again  on a monthly basis okay so when have I started  

the investment journey on first of November 2016  and what is my end date first of November 2021  

that is the end of five years so just for those  who want to see the entire calculation here you  

can see that the NAV is reducing by from 100 to 99  to 98 basically going down by one one one percent  

for how many years for four years so here you  can see that somewhere around September 20th, 

1st September 2020 that's the rock bottom point  okay and after which it has started to go up by  

how much percent two two percent so from sixty two  to sixty four point something to la la la whatever  

okay so now with this basic understanding you will  get to know that at the end of five years my total  

amount invested which was six lakh now has a  current value of investment of six lakh forty  

six thousand four hundred and eighty nine giving  me an XIRR of two point nine four percent okay  

but had I done a lumpsum investment in which  type of scenario initially bearish and then  

finally recovering in that scenario my absolute  returns would have been 16.9 percent negative  

and CAGR of minus 3.63 but again negative so  which can be a good scenario for SIP remember  

I told you in the previous parts of the video  I told you SIP is better in falling markets and  

this is how I have tried to prove you through an  excel calculation that Yes this holds True. Now  

when did I say lumpsum is good in a rising  market now let's try and analyze it through  

excel for a bullish market now same thing I have  done initially bullish means what two two percent  

per month I have increased the value for  first four years and in the last one year  

I am saying that now it is starting to cool off  so you will see that I am going to take down the  

value by one percent per month for the in the last  year so again what I will do is that uh a minute  

okay so here you can see same thing uh first month  it was 100 then taken 202 then 104 increased till  

I guess it was September 20 yes see it has gone up  to 248 and then it has come down to 246 okay and  

then i'm reducing it by one one one one percent  after that till the end okay so now if you go here  

and now if you analyze initial investment of  ten thousand rupees per month so SIP first  

ten thousand per month I have invested for five  years so total value of my investment is six lakh  

at the end the value will be seven lakh  eighty eight thousand six hundred giving me an  

XIRR of ten point eight five percent not bad  okay agreed but had it been a lumpsum investment  

six lakh invested at one shot in which kind of  market initially rising out of five four years  

it was rising in that scenario my final amount  of investment after five years would have been  

12,96,1339 giving me an absolute return of 116%  and a CAGR of 16.65 so I hope you have understood  

mathematically also using excel sheet  also why a lump sum investing can work  

in a rising market and why an SIP can work in  a falling market if you want I can pin this  

link of this excel sheet in the description box so  that you can play around with all these numbers. 

Well now you know that which route can be  better for a bullish market which route can  

be better for a bearish market but if you ask  me my choice I think SIP can be a better one  

why for two three reasons number one it gives me  an absolute discipline in investing, number two  

it gives me absolute peace of mind I know that  even if market is rising I am investing even if  

market is falling I am investing maybe my returns  might be comparatively less but my chances of  

losing out are comparatively lower right but  all in all whether you you're doing an sip or  

whether you are doing a lumpsum I believe that  taking your first step in your investing journey  

is the most important thing so let me know in  the comment section whether you have started  

an sip till date or not whether you have started  investing at least one lump sum investment whether  

you have done or not and if not then remember  right till then take care, Jai Hind and bye,  

bye