How to Make a lump-sum Investment in Equity Mutual Funds

Posted On Wednesday, Sep 21, 2022


When you invest in mutual funds you are have the choice of investing either a lump-sum amount or through a Systematic Investment Plan (SIP). Unlike the SIP mode, which allows you to automatically invest a fixed amount at regular intervals, the lump-sum mode involves making a one-time mutual fund investment as per your choice.



Generally, the lump-sum mode is popular among investors who have a chunk of investible surplus, and wish to deploy it at an opportune time when the markets have corrected since the peak and valuations look attractive.



Sharp market corrections offer you a valuable opportunity to purchase equity mutual fund units through lump-sum mode. And when the value of units grows over time, you will reap the benefit. So, while the benefits of SIP investment over the long term are well documented and popularised, lump-sum investment has its own benefits.



If you catch the market bottom, lump-sum investment can be fruitful when the market recovers.



One-time investment in mutual fund vs SIP


One-time investmentSIP
A substantial portion of the investible surplus is deployedA small fixed amount is invested at regular intervals
Appropriate when markets have corrected significantlySuitable for disciplined regular investments
Timing the market mattersMakes timing the market irrelevant


Do note that the equity market is often exposed to intensified movements due to the fast-changing world we live in. This makes the investment environment highly unpredictable. Therefore, finding the bottom could be extremely challenging for lump-sum investments.


In view of this, if you are looking to make a one-time mutual fund investment to take advantage of the market corrections, here is how you can do it without exposing the portfolio to high fluctuations:



1) Invest lump-sum in a staggered manner


When you make a lump-sum investment during a market correction, it is advisable to do so in a staggered manner (i.e. in multiple instalments) over a period, say, 3 months, 6 months, 1 year, etc. and not deploy your hard-earned money all at one go. Doing so shall enable you to capture various market levels. If the market declines further after you have made a one-time mutual fund investment, it can make you anxious and even compel you to make hasty decisions. But when you stagger your investments, you do not have to worry about missing the opportunity because you will be able to commit another instalment. This strategy works well if you can actively manage and monitor your portfolio to find attractive favourable entry points.



2) Opt for a Systematic Transfer Plan (STP)


STPs allow you to transfer a fixed amount from the debt scheme to equity schemes at a regular pre-determined interval, such as monthly or quarterly. If you have an investible surplus lying around with you during a market correction but are unsure about the market outlook, you can park the same in short-term debt mutual funds such as a Liquid Fund. You could then set up a Systematic Transfer Plan (STP) to transfer a fixed sum regularly into an equity mutual fund scheme of your choice (within the same mutual fund house). This will enable you to invest in equity mutual funds at different price points automatically without timing the market.



3) Boost your SIP corpus with a lump-sum


If you have ongoing SIPs in equity mutual fund schemes, you can capitalise on market correction as a way to boost your investment corpus. After every sharp correction in the equity market, you may make lump-sum investments in schemes where you have ongoing SIPs.



To conclude...


Whichever option you choose, make sure you have a long-term investment horizon of at least 5 years when investing in equity mutual funds. Never invest your money required to handle exigencies and short-term financial goals into equities.



Since it is difficult to predict the market bottom, it would be better to invest via SIP and make additional lump-sum investments during sharp corrections. Else, you can set up an STP to systematically transfer money from debt funds to equity funds at regular intervals.



And just like with every mutual fund investment, it is important that the scheme that you choose for lump-sum investment aligns with your financial goals, risk appetite, and investment horizon.



Investments through SIP and lumpsum mode are subject to market risk and do not assure a profit or returns or protection against a loss in downturn market.



Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

Mutual fund investments are subject to market risks read all scheme related documents carefully.

Please visit – www.QuantumAMC.com to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

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