There are two main ways to invest your money, depending on the money you have on hand and your goals. SIP investments let you build up a corpus by putting money into a mutual fund of your choice every month. At the same time, if you already have a corpus at hand, you may invest according to your goals. But what are your investment options for lump sum investments? Let us explore the same.
What is a lump sum investment?
A large investment in a mutual fund scheme is referred to as a lump sum investment. When investing in lump sums, the funds are paid upfront. People with big sums of money may invest a significant chunk in mutual funds. The systematic investment plan, or SIP, the method is the antithesis of the lump sum form of investing. Depending on your risk tolerance, investment horizon, and investment goals, you may make a lump sum investment in either fixed-income or equity funds. Even though SIP investing in mutual funds is still preferred by the majority of people, lump sum investment has certain benefits.
Advantages of lump sum investment
- You may put away substantial sums of money in mutual funds if you want to invest using the lump sum method. When the market is experiencing a time of growth, the value of the investment will rise relative to the value of a SIP investment to a far greater amount.
- You could consider a lump sum investment if you are planning to invest for a longer term. If you have a large quantity of money to invest and plan on leaving it alone for at least ten years, you may want to think about a long-term investment.
- If you have access to a large amount of money, you will find the lump sum investing technique to be the most practical. If, however, you want to invest in SIP mode, you should take care to invest the whole amount at a predetermined interval.
Options suitable for lump sum investments
Equity mutual funds: There are many broad types of mutual funds. One of the most common is an equity fund, which invests mostly in the stocks and shares of different companies.
Mutual funds that invest in stocks may be either actively managed or passively managed. In an active fund, it’s the job of the fund manager to look at the market, research companies, look at how they’ve done in the past, and pick the most promising stocks to invest in. A passive fund’s manager builds a portfolio that is meant to track a certain market index, like the Sensex or Nifty Fifty.
Direct investments in the market are riskier than equity funds, which are managed by experts and spread out over several companies.
Equity-linked savings scheme – You may invest in an ELSS if you wish to take advantage of the tax benefits offered by Section 80C and get exposure to the equity markets at the same time. Investing in an equity-linked savings scheme, which is essentially an equity fund, may earn you a tax break of up to Rs 1.5 lakh under Section 80C.
Debt funds – A debt fund is a mutual fund scheme that invests in fixed-income assets that give capital appreciation, such as corporate and government bonds, corporate debt securities, money market instruments, etc. Debt funds are also known as Fixed Income Funds and Bond Funds.
Liquid Funds – Although liquid funds are among the most convenient investing alternatives, they are not the most profitable over the long term. But these funds are great for keeping your money from going to waste while you figure out the best way to invest.
When you invest a lump sum, market timing becomes critical. Market timing is the process of figuring out when to buy or sell financial assets by trying to predict how prices will change in the future. Ensure you do your research and time your market while investing a lump sum for the best results.