Key idea
You can invest a little regularly, or a large sum at once. Each fits a different situation, and for a salaried person one is the natural default.
There are two ways to put money into the market. A SIP (Systematic Investment Plan) invests a fixed amount at regular intervals, usually monthly. A lumpsum invests a large amount in one go. Neither is universally better; they suit different circumstances.
When each fits
SIP (regular)
- A fixed sum every month
- Matches a monthly salary
- Averages your buying price
- Removes timing pressure
Lumpsum (one-time)
- A large amount at once
- Suits a windfall or bonus
- Exposed to entry timing
- Better when you have a corpus ready
Why SIP suits salaried life
For someone earning a monthly salary, a SIP fits naturally: you invest as you earn, automatically, without needing a large sum saved up or a view on whether the market is "high" or "low." It also spreads your buying across many price points, which the next lesson explains. A lumpsum is what you do with a bonus or an inheritance, when a corpus already exists.
Most salaried investors run a monthly SIP as their engine and deploy occasional lumpsums (a bonus, say) on top. Which suits a given sum depends on your situation.
Finished reading?
Marking this complete counts today, and your streak becomes day 1.