Lump-sum mutual fund investments or SIP (Systematic Investment Plan) investments? This battle between the two modes of investment seems to be never-ending. While some investors, especially those with low-risk appetites, prefer SIP investments, seasoned investors often take the lump sum route. Whereas some investors use both the modes – SIP and lump sum – while investing. So, if you have already explored SIP and are currently venturing into lump sum investments or you’re looking for the best lump sum mutual funds to invest in, this blog’s definitely for you!
Read on to know more about the best lump sum mutual funds and why they are a preferred option for many investors.
So, there are two modes of investment, SIP, where you invest periodically and lump sum where you invest in one go. Both the modes are preferred by investors and they come with their own sets of pros and cons. For lump sum mutual fund investments, the starting amount is usually Rs.5,000 (for the first year).
In the case of the lump sum mode, individuals allocate a bulk amount to a mutual fund scheme in one go. Here are some of the best mutual fund schemes for investors looking to opt for the lump sum route:
|Mutual funds for lump sum investment||5-year returns (Annualised Returns)|
|Navi Nifty 50 Index Fund||NA|
|Quant Tax Plan – Direct Plan-Growth||22.30%|
|Mirae Asset Tax Saver Fund – Direct Plan-Growth||16.33%|
|BOI AXA Tax Advantage Fund – Direct Plan-Growth||15.85%|
|Canara Robeco Equity Tax Saver – Direct Plan-Growth||15.39%|
|IDFC Tax Advantage (ELSS) Fund – Direct Plan-Growth||14.20%|
|PGIM India ELSS Tax Saver Fund – Direct Plan-Growth||13.26%|
|Kotak Tax Saver Scheme – Direct Plan-Growth||12.78%|
|DSP Tax Saver Fund – Direct Plan-Growth||13.27%|
|Union Long Term Equity Fund – Direct Plan-Growth||12.52%|
This table is for educational purposes only.
Disclaimer: Mutual fund investments are subject to market risk. Read all scheme related documents carefully before investing.
Individuals choosing mutual funds for lump sum investments can make a single investment with a minimum amount of Rs.5,000. After the initial lump sum investment in the scheme, one can make subsequent investments in multiples of Rs.1,000.
An individual investing in lump sum equity funds can consider a long-term investment horizon for wealth appreciation. Alternatively, one might consider putting the lump sum investments in other types of mutual fund schemes, such as a liquid fund, to fulfil short-term investment goals.
Considering the bullish and bearish market trend, investors might want to invest a lump sum in mutual funds and hold on to it for a longer period. The benefits of this investment mode are pronounced during low market periods. This is because one can buy more units owing to the lower NAV and sell them later on when the NAV increases, thus making substantial financial gains.
Here are some of the benefits of lump-sum investments in mutual funds:
Invest a substantial amount
One can invest a big amount in a mutual fund scheme through this investment mode. The value of the investment increases significantly during a period of market growth.
On investing through this mode, individuals need not be required to keep track of the investment dates. Furthermore, they do not need to have a certain amount in their bank account every month to invest.
To invest via the lump sum mode in mutual funds, individuals may consider opting for a direct or regular plan.
In the case of the former, investors allocate their funds to a scheme directly via the fund house. No third-party (broker/distributor) is involved in the transaction.
For example, You can start investing in the Navi Nifty 50 and other Navi mutual funds through third-party aggregators.
Alternatively, investors can opt for a regular plan. In this case, one routes the transaction in a scheme via a financial intermediary.
If you are planning to invest in mutual funds in the lump sum mode then you should do so at the beginning of a financial year. You will be able to enjoy a tax benefit of up to Rs. 1.5 lakhs under Section 80C of the Income Tax Act. Also, your money stays invested for a long time which will provide higher returns.
If you are confused about which mode will suit the best for your investment plan, you should consider the following factors to make up your mind:
Consider the following factors before investing in a lump sum:
1. Fund performance
It’s advisable to do thorough research on a fund’s performance before investing. Check reviews, returns in the last 3 and 5 years, etc. Based on these parameters, start planning to invest in a lump sum.
2. Investment goals
Know your investment goal before you put your money to work. Different investors have different goals. If you’re thinking short-term, you could go with active funds. Choose funds that are known for short-term returns. Similarly, for the long-term, you could go for some of the best index funds in the market. Again, do ample research before investing.
3. Cost of funds
Active mutual funds cost more than passive funds. You could read more about it here. However, in order to diversify your portfolio, you could invest in both, maybe opt for SIP for one and invest in a lump sum for the other. Check the total expense ratio before investing to enjoy the full value of your investments.
However, mutual funds are linked to the market hence there is some degree of risks involved. The following pointers talk about factors you should consider before investing in lump sum:
As investors need to pay a substantial amount in case of this investment mode, they might want to consider their financial situation before investing.
Individuals with substantial income might consider opting for a lump sum mode.
Before investing in equity funds through the lump sum mode, one might want to consider their risk profile. After all, their investments in the schemes are subject to market fluctuations. A substantial investment in a fund through this mode might lead to huge losses if an investor does not account for the market volatility.
One might want to consider his/her financial goals before choosing to invest via the lump sum mode.
The lump sum investment mode can be a suitable mode for investors with respect to their financial goals. However, knowing everything about this mode might help individuals to make the right decision. In this regard, referring to the aforementioned list of mutual funds for lump sum investments can be a good start.
Ans: Lump sum investment in mutual funds might be suitable for individuals who are aware of the market valuations. Generally, investments in lump sum mode during high market trends might lead to lower returns in future. Alternatively, one can benefit from these investments when the valuations are low.
Ans: A systematic Investment Plan is an investment mode where an individual can invest a fixed sum at regular intervals, for example, on a quarterly, monthly or half-yearly basis. The investment cost is lower in SIPs, meaning one can start investing with a low amount such as Rs. 500. By opting for this mode, investors can build a regular savings habit.
Ans: To compute the future value of your investments using a lump sum calculator, you must follow these steps:
– Enter the investment amount
– Choose the timeframe for which you wish to stay invested in a scheme (investment duration)
– Enter the expected rate of return
– Once you enter these details, the lump sum calculator will compute your estimated returns. Moreover, it will show the total investment value at the end of the investment time period.
Ans: Investors must take certain factors into consideration when choosing a mutual fund scheme for lump sum investment:
– Risk appetite
– Investment goal
– Past returns
– Fund managers’ experience
– Investment time horizon
Besides these, it is vital to compare the expense ratio of the schemes before making a decision.
Ans: Investors can enjoy the following benefits by using a lump sum calculator:
It shows the estimated returns for the investment duration.
This online tool enables investors to manage their finances more efficiently as they get to know the estimated returns at the end of the investment time period.
It is easier for individuals to compute the estimated returns using a lump sum calculator as they can avoid manual calculations.
Ans: While going for mutual fund investment, you have to choose between lump sum or SIP mode of investment. You can consider the following points if you want to choose lump sum over SIP investment.
– Growth: Through the lump sum mode of investment you invest a large amount. While there is a risk of loss if the market goes down, you can also benefit largely while the market is going upwards.
– Benefit of compounding: If you invest through lump sum and stay invested for a long time, you will benefit to a great extent through the power of compounding.
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Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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