The Psychology of Investing
One of the most common questions clients ask is whether they should invest a large bonus as a lump sum or stagger it through a Systematic Transfer Plan (STP) / SIP. The mathematical answer often favors lumpsum if you have a 10+ year horizon, because the market goes up more often than it goes down.
The Emotional Answer
However, the emotional answer favors the SIP approach. If you invest a lumpsum and the market drops 10% the next month, the psychological pain can cause investors to panic and withdraw, destroying wealth. SIPs provide emotional comfort and the benefit of Rupee Cost Averaging.