As soon as the term mutual fund investments is mentioned, investors often relate it with a Systematic Investment Plan, commonly known as SIP. However, if must know, there is another method to invest in mutual funds too -lumpsum investment. If you have excess funds, then you might consider to invest in lumpsum rather than opting the long route of SIP investments. Unlike SIP investments, investing in lumpsum might require an investor to time the markets, or that’s what most investors think. Hence, it is not uncommon for investors to get confused with the right time to invest a lumpsum in mutual funds. This article aims to solve that problem for you.
A lumpsum investment is a mode of investment wherein a single investment amount is made towards a specific mutual fund scheme by an investor. This mode is often recommended when an investor has surplus funds or significant corpus to invest in mutual funds.
There’s often a myth prevailing around investments in mutual funds via lumpsum investment that one needs to time the market. However, this is not completely true. What’s more, it is not easy to time the market. An investor usually prefers lumpsum investment to fulfil their short or mid-term financial goals.
The chief purpose of investments in mutual funds is that these investment vehicles aid to achieve financial objectives. So, even if you make a lumpsum investment, try to diversify your assets basis your investment profile. For instance, if you wish to cater to your short-term financial goals, consider opting for liquid funds. These investment options are endowed with relatively lower risks and higher liquidity. However, if your aim is create wealth over time and build your investment portfolio, then equity mutual funds might be the right choice for your portfolio. This is because these mutual funds have historically produced inflation-beating returns when invested for a prolonged duration. If your aim is to save on taxes while earning inflation-beating returns, then go with Equity-Linked Savings Scheme (ELSS). ELSS mutual funds are tax-saver mutual funds that help an investor to save taxes up to Rs 1.5 lac u/s 80C of the IT Act. To sum it up, divide your lumpsum mutual fund investments into smaller, insignificant portions to be allocated to varying types of fund basis your financial objectives. You can also use a lumpsum calculator to understand the future value of your investments. A mutual fund lumpsum calculator comes quite handy in planning your finances.
If you decide to go forward with the lumpsum mode of investment, your foremost priority should be protecting your capital. There’s no perfect time to invest in the markets. Additionally, if you are sure about your investment horizon, financial goals, and risk appetite, then any time is a good time. Investing in mutual funds requires an individual to check imperative parameters such as total AUM (asset under management) in the scheme, reputation of the fund house, investment objective of the fund, etc. Happy investing!