Broadly, there are two ways to invest in mutual funds. You can either invest a certain amount in one go or opt to invest a small amount periodically. Investing in one go is what we call a lump sum investment in a mutual fund.
Investing a lump sum amount in mutual funds is easy and accessible to everyone. Self-employed people like entrepreneurs and freelancers find it convenient to invest via the lump sum route, allowing them to invest a different amount as per their convenience and wish. Some may also choose to invest via lump sum upon receiving a bonus, an increment, or even when earning windfall gains!
But before you make up your mind, let’s understand what lump sum investment is in detail .
Key features of lump sum investment
Minimum investment amount:
Most mutual funds require you to invest a minimum amount as an initial lump sum investment in a scheme . However, after the initial investment, one can make subsequent investments in the same mutual fund scheme. (These may vary for different schemes, some mutual fund houses also offer SIP’s as low as Rs 100 )
Suitable for all types of goals:
Lump sum investments can help you realise your short-term and long-term goals. One can park a large sum in a suitable debt scheme for a short period and aim to achieve a short-term goal such as capital protection or income generation. Similarly, investing a lump sum in an equity oriented mutual fund for a longer period has a potential to generate wealth and fulfil long-term goals such as retirement, child education etc.
Utilisation of surplus:
The mode of lump sum investment can help one channelise the surplus amount, such as PF annuity, gratuity, annual bonus etc., in the right manner. Such earnings can be invested in mutual funds via lump sum.
Things to consider before investing in lumpsum:
Timing the market:
Investing lump sum can be like striking when the iron is hot. So, to know the time if the iron is hot, to learn the correct time to enter the market- studying the market trends is crucial. A new investor who is not familiar with the nature of markets, someone who simply doesn’t have the time to do so, or an investor with a conservative risk profile might find it difficult to time the market and invest a large sum at once.
No cost averaging:
SIPs help you buy more units when the markets are attractive and lesser when they are expensive. This helps average the cost of buying one unit, which is impossible in lump sum investments.
Patience:
Market ups and downs are inevitable. The urge to redeem investments depending on the market condition is also unavoidable. However, investing long-term may help one accumulate wealth over the year; therefore, it is important to be patient with your lump sum investment. Remember to focus on your goals and not get swayed by emotions even if the portfolio of lump sum investment takes sharp turns.
Now that you know the benefits of investing via lump sum and how to invest through this route, make a wise choice in taking your financial decision.
Disclaimer:
The information here in is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, associates or representatives (“entities & their associates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their affiliates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this document.
Mutual Fund Investments are subject to market risks, read all the scheme related documents carefully.
