Investors often associate their mutual fund investments with SIP investment. Though, it is true that Systematic Investment Plan or SIP is a popular investment tool available to investors that helps them to invest in mutual funds. However, there’s another method to invest your funds in mutual funds as well. Yes, we are talking about lumpsum investment. Investors often run away from this mode of investment as they are unsure when to invest in mutual funds through lumpsum investment? Can you invest in mutual funds via lumpsum now? This article aims to answer that question for you.
What is a lumpsum investment?
Lumpsum investment is a mode of investment wherein the entire investment amount is invested in one go at a time. Since unlike SIP investments, an investor cannot made further instalments to their lumpsum investment, they typically invest a significant amount towards lumpsum investment in one go. Thus, this mode of investment is ideal for investors who have a sudden influx of money or surplus amount of cash lying around. This money could arise from any source – winning a lottery, inheritance, bonus at work, sale of investment, funds received during retirement, court settlements, etc.
When is the right time to invest in mutual funds via lumpsum investment?
Let’s understand the best time to invest in lumpsum. Experts recommend investors to not invest in equities through lumpsum mode of investment. Why, you may wonder? Well, experts believe that SIP is a better mode of investment to invest in equities as SIPs allow to stagger your equity investments. Though lumpsum has its own pros, one of the biggest cons is that an investor is exposed to certain volatilities and uncertainties in the markets while investing in mutual funds via lumpsum mode of investment.
To counter this, several investors would say that they wish to earn significant returns through lumpsum investment in equities by timing the markets. Timing the markets is an investment concept and strategy wherein an investor aims to follow the ‘Buy low, sell high’ investment strategy. Though it may sound simple, it is lot more complex and complicated. Experts are against the idea of timing the markets as investors often end up attaining huge losses in an attempt to time the markets.
Lumpsum investment can be an ideal way of investing for short-term goals. This is because when you have a short-term horizon, your primary objective must be safeguarding your capital rather than focusing on significant returns. And lumpsum mode of investment are believed to work at their maximum capacity when the NAV of the fund or the market in general is at it’s all time low. Further, there should be scope for the markets to flourish in the near future.
You can consider STP (systematic transfer plans) along with lumpsum if you are not keen on exposing your investment portfolio to greater risks. STP allows you to transfer the money in your funds from one asset class to another asset class in a systematic and disciplined way. This could be an excellent strategy for someone who wishes to rebalance their portfolio.
Just like SIP calculator, an investor can use lumpsum calculator to estimate the future value of their mutual fund investments after the end of the tenure. A mutual fund return calculator is an excellent tool to plan your investments in a better and efficient way. Happy investing!