When it comes to investment, some of us are always confused if we should invest a lump-sum amount or go with the regular investment plan. Both these methods have their own pros and cons and can help you reap good returns.
It ultimately boils down to your requirement, saving capacity, risk appetite, and time horizon for the investment.
Let’s dive deeper and understand both these options to see what works best for you.
What is One Time Investment?
One time investment plans are the ones where you invest a huge amount at one time instead of spreading it out over time. Such a plan can be useful when you have a windfall profit, maturity proceeds, inheritance, or any other large sum of money lying idle and not in use.
You can invest this idle money to make it work harder for you. Since you will be investing this amount at one point in time, it is essential to know if you are okay with the risks involved.
It is important to plan your one-time investment strategy meticulously, as you do not want to risk all your money at one go when you have other short-term financial obligations that still need to be taken care of.
What is regular investment?
With regular investment plans, you invest a certain amount every month in your favorite stock or mutual fund scheme. This method is ideal if you have a steady income and you want to make sure that you save some amount every month instead of letting it slip away.
With regular investments, you have the freedom to pick any amount that you could spare every month for investment. Say, for example, if you could only manage to save Rs. 10,000 a month for investment, you can go ahead and invest this amount every month for a sufficiently long time.
Such a plan is also good because you invest amounts regularly, and you do not have to worry about market fluctuations as much. When the markets are down, your fixed monthly installments will purchase more units of the chosen fund, whereas, when the markets are up, the same amount will buy you fewer units.
Which One Grows the Money Better?
As mentioned above, both these investment strategies have their own pros and cons. Hence, it is essential to pick the most suitable one according to your needs and requirements.
If you have a large amount lying around and you want to invest the whole amount at one go for a long period of time, a one-time investment will serve you much better. Whereas, if you do not have a lot of money to invest all at once, regular investments could be the best option for you.
Say, for instance, a person with Rs. 6 lakh in savings has the option to invest this money as a one-time investment or as regular installments. At the same time, a person earning Rs. 70,000 a month wants to save Rs. 10,000 every month for investment. Both these people could pick either of the two methods according to their financial status and make the best out of it.
Is There a Major Difference Between the Two in Terms of Risk?
When it comes to risk, both these methods do have a slight difference to them. In the case of a one-time investment, you are putting a huge amount all at once, and hence, you are exposed to more risk. Whereas, with regular investments, you spread out your investments, which reduces your risk to a certain extent.
That said, regular investments are not an assurance that you will not face losses. Had the markets crashed immediately after you had made the regular investments, you would still be in the red.
So, when choosing between the two methods, you should not base your decision solely on which one carries lesser risk. You should keep in mind your financial goals and the time-frame within which you want to achieve them.
How to Decide on Your Financial Goals?
When it comes to making big financial decisions, your financial goal should be your top priority. If you have a long term investment plan in mind, it is a good time to invest. A long-term financial goal is, generally, one with a timeframe of more than 5 years.
If your financial goal is quite close, you should think twice before making any risky investments. You should be careful not to put money that you might need in the near future in a high-risk portfolio, as you might need the money at a time when the markets are down and you will incur losses.
The best long term investment plan, on the other hand, have the luxury of time to ride out market fluctuations. So, when you have a long-term financial goal in place, you can go for both regular and one-time (if you have enough money) investment plans.
If you are not in a position to make a one-time large investment, go for regular investments. You can invest each month from your salary if you have a regular income. Or else, you could utilise the windfall profits or maturity proceeds to make regular investments. In short, your financial goal should decide the investment plan and not the other way around.
Which Method Suits You Based on Your Risk Appetite?
When choosing between one-time investments and regular investments, it is essential to pick the one that suits your risk appetite the best. Let’s take an example here. Say, for instance, you are invested in the stock market for quite some time, and you want to get out of it now because of the recent market volatility.
Such a scenario shows that your risk appetite plays a major role in your decision-making ability. It is not advisable to make any financial decisions out of fear. Hence, when you are choosing between the two investment methods, make sure to keep your risk profile in mind. If you are not in a position to bear any losses in the short term, it would be best to go slow and steady with regular investments.
How Long Should the Time Horizon for My Investments Be?
As per your financial goals, you should decide on the investment time frame for your investments. If you have a long time horizon for your investment, you have the luxury of time to choose your investments wisely.
A long time horizon also means that you can take on a bit more risk, as you have ample time to recover from any short-term losses. When it comes to a short time horizon, on the other hand, you have to be quite careful while making investments. Hence, when choosing between one-time and regular investments, make sure to keep your time horizon in mind.
What Should You Do If You Have a Large Amount to Invest?
When you have a large amount to invest, you can go in for one-time investments only if you have an emergency fund and a lot of money to spare. Some people are in the habit of investing every penny they earn, leaving nothing for themselves. This is not the right way to invest, as you should only invest the amount you can spare.
Hence, when you have a large amount to invest, it is essential to keep in mind your other financial obligations before you make the final call on your investment decision.
What Should You Do If You Don’t Have Much to Invest?
In the modern world, most people have regular salaries that come in every month. Hence, it is much easier to follow a regular investment plan as opposed to arranging for a huge sum of money every now and then to make one-time investments.
With regular investments, you can invest any amount you like every month. So, if you don’t have much to invest right now, you can invest a little every month, as opposed to trying to invest a lot all at once.
You can also decide on an amount at the beginning of the month and treat the amount as your investment amount for the month. Hence, regular investments are ideal if you do not have much money to invest on a regular basis for a long period of time.
Are there situations where both the methods can be used?
Yes, there are certain situations where you could use both methods. For example, you can use the one-time investment method for windfall profits and the regular investment method for your monthly salary.
This way, you can enjoy the benefits of both these investment methods. With regard to the one-time investment plan, it is a must to make sure that you have kept aside a certain amount for your short-term financial needs before you invest a large sum all at once.
How to Choose the Best Option?
Once you have gone through the pros and cons of both these methods, it is time for you to decide on what suits you the best.
Firstly, decide on the amount that you will utilise for your investment purposes. If most of your savings are to be used for other purposes, then regular investments would be the best option for you. Next, decide on the period for which you want to make your investment. If you have a long time-horizon for your investments, you can choose to make regular investments. Lastly, make sure that the option you have chosen suits your risk profile and financial goal.
In short, when making the decision between regular and one-time investments, you should keep in mind your financial needs, savings, risk appetite, and financial goals.
If you have a certain amount to invest, do not rush to invest the whole amount at one go. If you have a small amount to invest every month, do not wait for a big amount to accumulate before you make regular investments.
