How should a mutual fund investment portfolio be ideally allocated between lumpsum and SIP?

With over 50 AMCs and thousands of schemes to choose from, investors are often confused about how to invest whether to invest a large lumpsum amount or start a systematic investment plan (SIP). The ideal allocation between lumpsum and SIP depends on multiple factors. Read on to learn more.

Benefits of SIP investing 

Rupee cost averaging: SIPs allow you to invest a fixed amount regularly, say every month. When the market is high, your fixed amount will buy fewer units but when the market falls, the same amount will buy more units. This rupee cost averaging helps reduce the average cost of purchase over time.

Disciplined investing: SIPs instill investment discipline as you commit to invest regularly. This helps counter emotional decision making and inconsistencies.

Lower entry barrier: Compared to lumpsum investing which requires large capital, SIPs allow you to start with a small amount every month. This makes mutual fund investing accessible. 

Goal planning: SIPs can be aligned to financial goals by setting the SIP amount and tenure accordingly.

Benefits of lumpsum investing

Market timing: Lumpsum investing allows you to time the market and invest when valuations seem attractive. This may give higher returns than SIP. 

Immediate exposure: You can gain instant exposure to a fund or asset class by investing a lumpsum amount.

Large corpus: Lumpsum investing enables building a large corpus especially if you have funds to invest. 

Ideal allocation factors 

Some key factors to consider for ideal lumpsum vs SIP allocation:

Investment horizon: A longer investment horizon favours SIPs while lumpsum can be considered for short term goals. 

Available funds: Lumpsum investing requires large amount ready to invest. SIP only needs small fixed monthly savings. 

Market condition: If market seems overvalued, stagger lumpsum investment. In volatile conditions, SIP may be better.

Need for discipline: For investors lacking discipline, SIP ensures regular investing.

Goal requirements: Assess how much monthly investment is needed to achieve financial goal via SIP. 

Risk appetite: Those with a high risk appetite can consider larger proportion of lumpsum investment. 

Age: Younger investors have longer investment horizon and can allocate higher to SIP. Older investors may prefer lumpsum.

Sample portfolio allocation

Here are some sample mutual fund portfolio allocations between lumpsum and SIP

• Conservative allocation 30% lumpsum, 70% SIP
• Moderate allocation 50% lumpsum, 50% SIP 
• Aggressive allocation 70% lumpsum, 30% SIP

The actual allocation depends on specific requirements and conditions of the investor. 

SIP calculator

A SIP calculator helps assess corpus generated from periodic SIP investments. Key inputs are

• Monthly SIP amount
• SIP tenure
• Expected rate of return 

Popular online SIP calculators allow calculation based on above inputs. SIP calculators help plan SIPs better.

Lumpsum calculator

Lumpsum calculators help calculate the future value of a lumpsum investment. Key inputs are

• Lumpsum amount 
• Investment tenure
• Expected rate of return

Lumpsum calculators available online make it easy to estimate future corpus from one-time investments. 

Conclusion

The ideal mutual fund portfolio allocation between lumpsum and SIP varies across investors based on specific needs and risk profiles. However, combining both lumpsum and SIP investments allows benefiting from their individual advantages. Investors must assess their goals, time horizon and risk appetite to determine the right mix of lumpsum and SIP investments in mutual funds.