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On joining a new company, 45-year-old Akash have received a 10 lakh bonus that he is willing to invest. However, he is still in two minds whether to invest the money in lump sum or through STP. 

Amit Trivedi, personal finance coach, speaker and author of Riding the Roller Coaster, opined, since Aakash is contemplating whether to invest the money in lump sum or STP, the investment horizon is definitely long term. 

“In such a scenario, first, it's extremely difficult to visualise how big or small the difference could make."

Second, lump sum is a one shot investment.  On the other hand, STP would involve multiple entry points. So how can you find multiple entry points? 

Third,  to add to the complexity, how should you decide whether to spread out the STP - over six month period or a one year period or a five year period?

These small factors can change the entire equation over the long term, said Trivedi adding, it is more of a psychological issue than financial. 

Lump sum or STP: What should you choose? 

For majority of the investors, when they invest in lump sum, immediately, they start watching the ups and downs of that money compared to the fact if you spread out the investment.  Meanwhile, spreading the investments over a period of time will make it a little easier to digest the volatility. 

It's a psychological phenomenon that people presume that their large amount of money is subject too much fluctuation, and that can disturb somebody. So if you can handle that, you'll find a lump sum investment easy, otherwise you should go for the STP route, he concluded.


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