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August 1, 2021
Finance

WHEN IS THE RIGHT TIME TO INVEST A LUMPSUM IN MUTUAL FUNDS?

When people talk about mutual fund investments, the first thing that crosses the mind of an investor is Systematic Investment Plan (SIP). SIP investments help investors to invest in mutual funds in a systematic way over a period of time. However, there’s another way to invest in mutual funds as well – through a lumpsum investment. If you have surplus funds, then you can make a lumpsum in mutual fund rather than moving forward with long-route of SIP investments. Unlike a lumpsum investment, SIPs do not require to time the market. Hence investors are often confused about the right time to invest a lumpsum in mutual funds. This article will help you understand the same.

A lumpsum investment is a single significant investment done by an individual in a particular mutual fund scheme. It is usually considered when an investor has a significant corpus or surplus funds to invest in. This money could be from the inheritance from a wealthy family member or friend, or sale of a house, or money received from retirement, or even any accumulated money that you might have lying around in your house or bank account.

You might think that lumpsum investment might require you to time the market, which is not the case. What’s more, timing the market is not an easy task. Even if you wish to invest in mutual funds via a lumpsum investment, you might consider buying smaller amounts daily, thanks to the volatility faced in the markets.

Additionally, if you are crystal clear about your financial goals and objectives, investment horizon, and risk profile, then any time is a good time.

The main purpose of mutual fund investments is to help you achieve your financial goals. So, even if you make a lumpsum in mutual fund, diversify your fund allocation as per your investment profile. For instance, if you have short-term goals, then you might consider investing in liquid funds that are endowed with low risks and greater liquidity along with lower returns. However, if you are looking to create wealth over time, then you might consider investing in equity mutual funds as these funds have a historic track record of producing inflation-beating returns when invested for a longer duration. If you are keen on saving tax, then you might consider investing in Equity-Linked Savings Scheme, also known as ELSS funds. ELSS funds help to save an investor up to Rs 1.5 lac under section 80C of the Income Tax Act, 1961. In essence,  you can choose to divide your lumpsum investments into smaller parts of money that can be allocated to different types of mutual funds according to your financial goals and objectives. This will give your investments the little push required to achieve great returns.

When investing in mutual funds, do not forget to check important parameter such as reputation of the fund house, total AUM in the scheme, investment objective of the fund, etc. Happy investing!

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