Mutual fund SIP or lump sum investment: In the twilight years of a career, those aged 50 to 55 face a pivotal financial crossroad: how to pivot from active earning to relying on their nest egg. Mutual funds stand out as a beacon for growing retirement savings. One crucial choice that a person must make when investing is between a Systematic Investment Plan (SIP) or lump sum investment.
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SIPs are lauded for tempering market highs and lows with disciplined, regular contributions. For those nearing retirement, the strategy is particularly attractive for its risk mitigation, avoiding the pitfalls of market timing.
Yet, lump sum investments hold their own allure, promising potentially higher returns when market conditions smile favourably.
Experts Leaning Towards SIP
“For individuals nearing retirement, SIP is often seen to be the more prudent choice. At this stage in life, an individual’s risk tolerance is typically lower. SIPs inherently reduce risk through their cost-averaging feature and can offer the advantage of compounding if initiated early.
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So, I would advise that the person do an SIP till the time of retirement so that a corpus is built for the post-retirement period,” Mihir Vora, Chief Investment Officer at TRUST Mutual Fund, advises. They also noted the strategic merit in reserving a portion for lump sum investments to capitalize on any sudden market downturns.
Christy Mathai, Fund Manager-Equity at Quantum MF, points out, “given the markets are fairly valued to expensive across different market caps; an investor should prefer SIP as a way of investment in mutual funds.” Their stance underlines the cautious approach warranted by the current market valuation.
The strategy gains complexity as one considers the remaining time to retirement. “In the case of a person who is 50 years old with a 10–15-year window before retirement, SIP can prove to be an effective strategy for building a substantial retirement corpus. At the age of 61, he can move the 80 per cent corpus into a conservative portfolio in a balanced Mutual Fund growing at the rate of 10 per cent till the age of 85,” explains Nehal Mota, Co-Founder & CEO of Finnovate. This methodical shift from growth to conservation, augmented with a Systematic Withdrawal Plan (SWP), secures not just financial comfort but a well-crafted legacy.
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A Nuanced Problem
The choice between SIP and lump sum investments is nuanced, shaped by individual risk appetites and market conditions. The wisdom of financial advisors becomes invaluable in this decision-making process. For those approaching retirement‘s doorstep, the mantra is to invest early, plan strategically, and approach the future with a steady hand.
