Lump sum Investment
There will be a situation, where you have a lump sum (money) in hand and you wish to invest in equity funds. This lump sum investment is considered to be one of the best ways of investing in Mutual Fund. In lump sum investing, entire money is invested in one go. It is exactly the opposite investment mode of systematic investment plan (SIP) mode.
The lump sum is not a harmful investment, depending upon risk-appetite, investment goal and tenure, one can invest lump sum amount either in an Equity fund or fixed income. Though most of the individuals prefer to invest in Mutual Fund schemes via Systematic Investment Plan, Systematic Transfer Plan, Systematic Withdrawal Plan, yet there are some advantages with the lump sum investing.
1.Huge Investment: With lump sum investment, the investment value of an individual also increase to a larger extent compared to the value of the systematic investment plan (SIP), when the market growth rate is positive.
2. Long-term Tenure: This type of investment is suitable for individuals, who prefer to invest through long-term. In case of lump sum investment,12 years or more can be considered as a long-term investment.
3. Investment Timing: Whenever an investor chooses lump sum investment, they must and should look for market timing. The best time to invest is when the market is already slumping and showing some growth potentials. In this situation, there is a better chance for individuals to earn higher returns through lump sum than the systematic investment plan (SIP) mode. On other hands, if the lump sum investment is done when the market is at peaks, in this case, the individuals might end up with a great loss.
4. Convenience: Lump sum investment is more convenient compared to SIP mode. With lump sum to invest, individuals who are having a considerable amount can spread their investments. Whereas in SIP mode, the individuals have to be more careful that the amount is invested at regular intervals.
What is the best option for your Lump sum investment?
Coming to lump sum investment, Debt mutual fund is the best option rather than the equity mutual fund.
Reasons to choose Debt mutual fund:
- Compared to equity mutual fund, debt mutual funds are much safer.
- Over a period of time, we can expect better, stable and sustainable returns.
- High liquidity of debt mutual fund than an equity fund.
- Equity mutual funds are market dependents. If the market is in the rise, you will end up catching a high point of the equity markets. If the market falls down sharply, a larger portion of the value of your money can get eroded in the less time.