Several investors live in the dark that SIP and mutual funds are quite replaceable. What they fail to realise is that Systematic Investment Plan, commonly known as SIP is barely a method available to investors that helps them to invest in mutual funds. However, did you know that there’s one more way through which you can invest your money in mutual fund investments?
Yes, you heard us right. There are two ways to invest in mutual funds – either through regular and disciplined mode of investment through SIP or one-time investment through lumpsum investment.
Though there is loads of information about SIP investment on the net, not much is covered about the lumpsum mode of investment. One such important yet often overlooked piece of information is determining the right time to make a lumpsum investment in mutual funds. Don’t worry, we have got you covered. In this article, we will understand the right time to invest a lumpsum in mutual funds. But, first let’s quickly recall what lumpsum investment is.
What is a lumpsum investment?
Under lumpsum mode of investment, an investor delegates a substantial amount of money towards mutual fund investments at a time.
This mode of investment is suitable for investors who have a sudden and substantial influx of cash in their bank account or have a huge amount of idle cash lying around. The influx of cash could be in the form of anything – sale of assets, money received after retirement, winning a lottery, tax refunds, court settlements, gift, inheritance, or literally anything else.
When is the correct time to make a lumpsum?
If you are looking to make an investment in equities, lumpsum mode of investment might not be the suitable way of investing for you. This is because experts believe that with equity investments, it is better to stagger your investments – as in the case of SIP investment. When an investor invests a lumpsum in mutual funds, they expose their portfolio to certain uncertainties and volatilities associated with the stock markets.
There’s one important parameter when it comes to investing in mutual funds through lumpsum mode of investment – timing the markets. During this time, an investor’s main goal should be safeguarding their capital. The lumpsum mode of investment is believed to offer best results when the stock markets are on a rise. Also, you might consider investing in debt funds when you wish to make a lumpsum investment. If you wish to evaluate the future value of your lumpsum investments, you might want to use a lumpsum calculator.
As you might know, there are certain risks associated with investing a lumpsum in mutual funds. If you do not wish to expose your investment portfolio to these risks, you might consider delegating your risk through STPs – systematic transfer plan. STPs help investors to systematically transfer their funds in a disciplined way from one asset class to another.
Happy investing!