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As soon as the term mutual funds is mentioned, investors often link it to SIPs (Systematic Investment Plan). SIP is nothing but a tool to invest in mutual funds. However, there’s another way to invest in mutual funds as well – lumpsum investment. Unlike SIP investment, lumpsum investment requires an investor to invest their entire investment amount in one go. Hence, it is important that you invest in lumpsum at the right time. But what is the right time? Is it right now? This article will answer these queries for you. But before we dive deeper into that, let’s quickly recall lumpsum investments.
What is a lumpsum investment?
Under this mode of investment, the investor invests the entire amount in one go. Usually, a significant amount is allotted towards lumpsum investment. This mode of investment is preferred when an investor has surplus funds or sudden windfall of money. This money could be a result of inheritance, sale of investments, lottery, bonuses, sale of assets, court settlements, money received on retirement etc.
What is the right time to make a lumpsum investment in mutual funds?
If you wish to invest in equities or equity-related investments, lumpsum mode of investment may not be best route to fulfill your goals. This is because experts believe that it is better to stagger your equity investments with Systematic Investment Plan (SIP) rather than making a lumpsum investment. When you decide to invest a lumpsum amount in mutual funds, you are exposed to certain uncertainties and volatilities associated with stock markets.
You might have often heard people caution you about lumpsum investments that it might require you to time the markets. Though this may sound easy and simple, it is lot more difficult. Several investors make efforts to time the markets, only to fail miserably.
If you are looking to achieve your short-term goals, then your primary objective should be preserving your capital. You can achieve the same by investing your lumpsum investment in debt funds. Additionally, investors usually recommend investors to invest in mutual funds via lumpsum investment to cater to their short-term investment goals. Lumpsum investment offer their maximum potential when the NAV (Net Asset Value) of the fund or the market is at its all year low and there’s scope for the markets to progress.
If you don’t wish to expose your portfolio to too much risks, then you might consider making an STP (Systematic Transfer Plan) along with lumpsum investment. This will help you to systematically transfer your funds from one asset class to another – usually debt to equities. This investment strategy is usually used in scenarios when one needs to relocate their portfolio.
So, depending on the type of fund you invest in, your financial goals, risk appetite, and investment horizon, the right time to make a lumpsum investment can be determined. You can also use a lumpsum calculator* to understand the approximate returns earned on your mutual fund investments. So, use this investment tool to better plan and manage your finances and investments. Happy investing!
*Note that a lumpsum return calculator is not an absolute indicator of the returns on your investments. Rather it provides an estimated value.
