Lump sum investment involves investing the entire money available to an investor. For instance, if someone desires to invest the whole amount present with him in mutual funds or similar investment instruments, then it will be termed as a lump sum investment.

Similarly, lump sum payment is the same but in terms of payment. As the name implies, it does not involve any instalments or breakage of the whole amount.

How is a lump sum investment different from SIP?

SIP or Systemic Investment Plans are completely the reverses of lump sum investments. The following points will help in assessing the differences between lump sum and SIP.

• Mode of investment

Primarily there are two modes or ways to invest money in a mutual fund- via systematic investing plan (SIP) or via Lumpsum . In the case of SIP, the investment is done in installments. The whole amount is not invested at once as they follow a systematic way of investments which involves monthly deposits of a fixed sum by the investor.

On the other hand, lump sum investment comprises a large sum of money invested at a single point. This does not take into account any breakage of the available amount or instalments.

• Potential investors

SIPs are fairly safe as an investment tool. Hence, it is suitable mainly for the starters who have not yet learned about the market or are not totally aware of the same.

Conversely, a lump sum investment is generally more suitable for the larger players. They have been around longer and have acquired sufficient experience in the market. Hence, they can also manage the risks associated with investing a large sum.

• Time period of investment

SIP has various schemes of investments to present to investors. Therefore, their period is also varied. They can be open-ended as well as close ended or even hybrid in nature.

However, with a lump sum payment, the amount is pledged for a fixed period. Since no installments are to be paid, the money is deposited or paid only once and is, hence, fixed.