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For an investor new to the world of investing, investing in mutual funds can be a significant decision. After analyzing the right type of mutual fund for their portfolio, they further need to narrow down concerning how to invest in mutual funds. You can invest through two distinct methods – either through the disciplined approach of SIP (systematic investment plan) or through the one-time investment of lumpsum investment. This article focuses on lumpsum investment and why you should invest in lumpsum.
What is lumpsum investment?
Lumpsum investment is when an investor invests their investment amount in one go without breaking their investment amounts in several, small constituents. This mode of investment is usually ideal for investors who have a substantial amount of money to invest.
Benefits of investing in mutual funds via lumpsum investment
Following are some of the benefits of investing your money in mutual funds in one go – i.e. lumpsum investment:
- Ideal for long-term investment duration
Lumpsum mode of investment is ideal for a long-term investment duration of 10 years or more. Thus, if you are an investor with long-term financial goals, lumpsum may be the right mode of investment for you. However, you must note that if you wish to invest in debt funds, then a short to medium term investment horizon is preferred over long-term investment. - Investing a significant amount
Lumpsum investment allows investors to invest a substantial sum of money in mutual funds. If the markets are in a growth phase, then your investments are likely to grow to a huge extent when compared to SIP investment. - No commitments
Unlike SIP mode of investment, lumpsum investment does not demand any future commitments from an investor. So, you can invest in mutual funds via lumpsum and let your investments do the magic – you just have to patiently wait for your investments to reach their maximum potential. This feature makes lumpsum investment ideal for those individuals who are either self-employed or have irregular flow of income. - Better control
When you invest your money in mutual funds through lumpsum mode of investment, you have better control over your investments, and you are in a better position to make the best out of market corrections. - Ease of investing
Unlike SIP investments, lumpsum investments do not require you to make regular contributions to your mutual fund schemes. Thus, lumpsum investments are ideal for those individuals who are scatter-brained or those individuals who fail to plan their mutual fund investments in a planned and systematic manner.
Experts recommend investors to be careful about when they enter the markets. An investor must judiciously study and analyse the markets before making a lumpsum investment. The ideal time to invest a lumpsum is when the markets are in a slump and show potential for growth in the future. However, if you end up investing when the markets are at its peak, you might indulge serious losses on your mutual fund investments. If you wish to understand the future value of your investments to plan your finances better, you might consider using a lumpsum calculator. You can also use it backwards to understand the amount required to invest to reach a particular figure. Happy investing!