Should investments in Debt Funds be made through SIP or Lump Sum?

The falling interest rate regime has made Debt funds lucrative, but at the same time, the new tax rules on these funds introduced last budget, might make investments in them less easy. Finance Minister, Arun Jaitley, declared an increase in the holding tenure for debt funds to make them eligible for tax benefits. As per the new rules, an investor has to hold a debt fund for a period of three years to claim taxation benefits. If the debt investments are sold before three years, then capital gains will be added to income and taxed as per the tax slab. Here is a comparison of investing in debt funds through SIP and Lumpsum.
 
Systematic investment plan (SIP) route: SIP is one route to investing in debt funds. However, with new rules, each SIP installment has to complete a period of three years in order to get indexation benefits. Thus, it will make the process of SIP burdensome and time consuming for investors. SIP route should be taken for short term or income funds, which have more volatility factor over ultra short-term and money market funds. SIP route is less appropriate during falling rate scenario, when volatility is less as compared to rising interest rate environment.
 
Lump sum route: Investing a lump sum in debt funds will solve two issues, one is re-investment risk, and the other is the tax benefit. An investor should consider investing in a fund, with the modified duration a longer than ones investment horizon. For instance, if an investor wants to redeem his debt fund after three years then he should choose a fund that has a modified duration of 8-10 years. A lump sum investment in debt fund will be eligible for tax benefit at the end of three years and thus, will do away, with the time barriers applicable in SIP.