What is Lumpsum Investment?
A lumpsum investment is a method where an investment in a mutual fund is made in one go. They are usually made in great amounts, unlike SIPs which are small investment amounts at regular intervals. Lumpsum investments do not occur at regular intervals, instead, one can make these at their disposal. For example, let’s say Priya wanted to investment Rs.1,00,000 in a mutual fund. She didn’t want to split the amount to be put in small investments at regular intervals, since she had surplus money lying idle in her bank account. As Priya is well aware of inflation risk, she decided to put all of it in one go.
How to make a Lump Sum Investment in Mutual Fund ?
Investing has become a very flexible and easy process nowadays with the entry of online mobile apps. It started off with the physical/offline mode which involved a lot of paperwork. On the flip side, now it’s just click-click online and you’re done. You can invest your lumpsum amount easily through an app like Tarrakki by choosing the suitable fund and making the payment. Let’s use Priya’s example for further explanation:
Priya opens the Tarrakki app and selects the scheme her advisor asked her to invest in and chooses the ‘Lumpsum’ option where she enters the amount of Rs.1,00,000. She then proceeds to make the payment through her preferred method and she’s done! Once her transaction goes through the fund will be visible in her portfolio.
Benefits of Lump Sum Investment in Mutual Fund
Winner in the bull market
Investing via lumpsum amount is just like stock investing, only here you invest in a basket of stocka rather than individually. So when the bull market is trending, one can take full advantage of the situation and invest heavily in the well performing sector funds. Lumpsum allows investors to make the most out of rallies since greater amounts provide greater returns.
Utilising the Windfall Gains in a Better Manner
When you receive a bonus or win a lottery, or any other unexpected gain in income, you can invest an amount of your choice at any given time. SIPs would make the process slower, and let’s face it, with the current inflation, it’s better to invest all the money you can instead or leaving it to erode in your savings account.
Better Control over Investments
So you don’t have a disciplined approach with saving and investing. Not an issue! You’ll get there. But before that happens, you can invest in lumpsum amounts where the control over your investments lies in your hands and not the bank’s. You are the king of your frequency and amount of investments.
Contributes better for the Long term
A lumpsum investment is most suitable for investors who prefer to invest their money in the long term. If you invest your money and wait a minimum of 5 years, then the returns would be high. When you invest a hefty lump sum and remain invested for a long period, you are able to experience the power of compounding. Your capital investment earns an income either through appreciation or interest. This income when reinvested continues to further earn additional returns. As a result, you are able to accumulate significant wealth in the long term via this method.
How do you know if it’s suitable for you?
You satisfy the minimum investment amount
It’s important that you check the minimum investment amount required by the funds you are going to invest in. Although it varies fund to fund, the least of all is Rs.5,000. After the first 5,000 you can even make an investment of Rs.1000 in the same scheme.
Financially prepared to take the risk
If you do not rely on this amount for a living, you’ve got the green signal. However, if you think you’ll receive a sure shot appreciation and you’ll multiply the value without a doubt, it’s a red signal. Mutual funds are subject to market risk which means your returns could swing either way. You cannot guarantee a gain on your investment.
Mentally prepared to take a risk
Emotional biases have been talked about quite often lately. An investor enters a positions with a gaining mentality and when they see their portfolio in negative, they immediately exit thinking it was a bad decision. Have faith in your decisions and do not get jittery when the market swings towards the negative in the short term, if you are looking at the long term.
If you have a hefty amount just lying in your bank account, put it to good use, hold that investment with a long term perspective, and invest only when you are mentally and financially prepared for it. More importantly, you must not panic in case the market sees a down trend and start exiting your investments. Make use of market corrections.
Tarrakki – Towards prosperity