Investment has become a significant aspect of a person’s life. People are finding methods to generate money even when they are sleeping; they are generating both active and passive income by uploading videos online and receiving millions of views, or by simply putting their money in the appropriate financial security. To make passive income from investing, however, you must have the necessary expertise to put your eggs in the correct basket. This article will not only help you obtain that information, but it will also teach you about the Best Mutual Funds for Lumpsum Investment 2022, so you can receive the best results based on your objectives.
What Is A Mutual Fund?
A Mutual Fund is a sort of organisation that pools money from multiple people/investors that have a common investment goal and invests it in various financial products such as stocks and bonds. A SIP (Systematic Investment Plan) or Lumpsum are the most typical ways to invest in it. In a lumpsum mutual fund, you invest the full amount in a single payment at a specific time, as opposed to in several little sums over time in a SIP.
Mutual funds are managed by professional fund managers, who charge a Management Expense (also known as an Expense Ratio) of up to 3% of your entire investment to help you earn more. Mutual funds are an excellent kind of investment since they provide investors with several benefits such as liquidity, diversification, and expert management.
What is a Lump sum Investment?
A lump sum investment in a mutual fund refers to a one-time, large investment that is locked into the mutual fund. As opposed to doing it this way and spreading it out over time, like in SIP (Systematic Investment Plans).
Prominent players and investors, especially those who rely on the appreciation of company stock for capital formation, typically prefer to invest in mutual funds in lump sums. A lump sum mutual fund investment may be an excellent chance for a savvy investor with a sizable investment budget and a high tolerance for risk.
For instance, you receive a sizable bonus one year unexpectedly. You’ve set aside funds for all of your previously anticipated responsibilities and investments, leaving you with Rs. 60,000. Given that it is excessive and you don’t have any concrete plans for it, you choose to take a chance with it. You might put the whole sum into one mutual fund plan of your choosing.
Best Mutual Funds Historically – Basis Past 5 Year Returns – As On Date 21 Oct 2022
- Equity Mutual Funds:
| Equity Mutual funds for lump sum investment | Category | 5-year returns (Annualised Returns) |
| Quant Tax Plan | ELSS | 23.81% |
| Quant Flexi Cap Fund | Flexi-cap Funds | 19.48% |
| Mirae Asset Emerging Bluechip Fund | Large and Midcap Funds | 15.00% |
| Quant Mid Cap Fund | Midcap Funds | 21.38% |
- Debt Mutual Funds
| Debt Mutual funds for lump sum investment | Category | 5-year returns (Annualised Returns) |
| Quant Liquid Plan | Liquid Fund | 5.88% |
| PGIM India Ultra Short Duration Fund | Ultra Short Duration Fund | 7.25% |
| Edelweiss Money Market Fund | Money Market Fund | 6.50% |
| ICICI Prudential Short Term Fund | Short Duration Fund | 7.44% |
| Edelweiss Banking and PSU Debt Fund | Banking and PSU Fund | 7.61% |
| Axis Corporate Debt Fund | Corporate Bond Fund | 7.21% |
Features of a Lump Sum Investment:
- Investment Amount
Individuals who choose mutual funds for lump-sum investing can start investing with a minimum of Rs.5,000 in a single transaction. After the first lump sum investment, additional investments can be made in multiples of Rs. 1,000.
- Investment Horizon
A person who invests a lump sum in equities funds can contemplate a long-term investment horizon for wealth growth. Alternately, lump sum deposits might be made in other types of mutual fund schemes, such as a liquid fund, to meet short-term investing objectives.
- Market Volatility
In light of the bullish and negative market trends, investors may choose to invest a large sum in mutual funds and hang on to it for an extended length of time. The benefits of this investment strategy are accentuated during market downturns. Due to the lower NAV, one can purchase more units and then sell them when the NAV rises, resulting in considerable financial benefits.
Advantages Of Lump Sum Investment vs SIP Investment
Here are the advantages of lump-sum versus SIP investments:
- No Investment Obligations
The investors do not need to commit to making more investments in the future when investing in a lump sum. For people who are self-employed and may not have consistent surplus income flows, it is frequently preferred.
- Better Investment Control
The timing of an investor’s investments in mutual funds is under his or her control if they are made in a lump amount. When market values are lower, one might decide to invest. As a result, it enables investors to profit from market declines.
- Better Ways to use the Economic Benefits
Throughout the course of the year, one may obtain unexpected revenues, such as an annual bonus, overdue, leave encashment, etc. If one chooses to make a lump sum investment rather than a SIP, they can better use their unexpected income. The investible amounts in a SIP are invested over time, so any remaining funds may continue to be held in savings accounts.
- Advantageous in Bull Markets
During bull markets, investing a large sum is extremely beneficial. This is due to the fact that since the whole investible amount is invested for the entire time, investors are able to benefit from market rallies. SIP investing, in contrast, spreads out the investment across time. As a result, only a portion of the total excess may profit at any one time.
- Power of Compounding
Compounding is the process by which an investor receives extra returns on their initial investments. The eighth wonder of the world, according to Albert Einstein, is compounding. This effectively demonstrated the power of compounding, which causes returns to rise exponentially as holding times lengthen. The most important catalyst for returns to the compound is time. The average holding time of assets is, however, shorter with SIP instalments than with lump-sum mutual fund purchases. As a result, lump sum investing enables investors to better take advantage of the benefits of compounding.
Risks Associated With Investing In Mutual Funds In Lump Sum payments
In order to decide which mode would work best for your investment strategy, you need to take into account the following factors:
- One of the primary issues regarding the manner of investing should be the timing of your investments. Your portfolio worth will be considerably impacted if you are going to invest a large sum and the market is unstable.
- The primary goal when selecting an investment strategy is wealth building. You might not receive the money you invest in a lump amount when you need it. Therefore, you might not want to invest through the lump sum option if there is a chance that you will need emergency financing in the near future.
When Should You Choose A Lump Sum Investment In Mutual Funds?
If you have received a lump sum of money and want to invest in mutual funds, you must pick lump sum investments if you are well-versed in the market and the historical trend of the MF scheme. Alternatively, you can use a systematic transfer plan to invest consistently over the course of a year (STP). With STP, a fund house enables an investor to make a one-time investment in one plan and make recurring payments into another scheme in a predetermined amount.
An automatic method of transferring money from one MF to another is called a systematic transfer plan, or STP. Investors who wish to make a one-time investment in a lump sum, mitigate market timing risk, and take advantage of market fluctuations should pick this plan. Most frequently, the investor who has a lump sum of money and ultimately wishes to invest in mutual funds with an emphasis on equity picked this choice. When the market is favourable for an investor to invest in equity mutual funds, the lump sum amount is systematically shifted from debt mutual funds to equity mutual funds.
Conclusion
A lump sum is a significant amount of money that should be invested carefully in the finest type of fund, and investing a lump sum in mutual funds is a fantastic choice. However, it is advised against making a lump sum investment in an equity mutual fund without doing adequate research because the time of your investment affects your profits significantly because stock prices are volatile.
However, each person is unique; they each have a distinct cognitive process, distinct taste, distinct time horizon, distinct risk tolerance, distinct investing purposes, and distinct goals. Therefore, it is not rational nor acceptable to claim that there is just one Mutual Fund for lump-sum investments that would fit everyone.
Before selecting the top MF for Lumpsum Investment 2022, keep the following elements in mind while maintaining your Investment Objective, Time Horizon, and Risk Tolerance in mind:
Asset Management Company (AMC) Track Record, Scheme’s Asset Under Management (AUM), Fund Manager’s Experience, Fund Performance, Net Asset Value, Expense Ratio / Management Expense, Exit Load, and Exit Load.
FAQs
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Is making a lump-sum investment in mutual funds a wise idea?
Yes, making a lump sum investment in mutual funds is an excellent idea. Additionally, whether you should invest or not relies on the money’s availability and its potential future demands. When compared to other fixed income-producing possibilities, mutual funds historically have provided better returns if you have a surplus or a lump sum of money to invest. However, before making an investment, you should think about your financial goals, the scheme’s goal, and any related risk.
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Which is preferable, monthly or lump sum investments?
The availability of cash and the investing aim determine whether to invest in a lump sum or over time. You can invest a lump sum of money if you have extra money to invest. SIP is a better choice if you wish to approach investing in a methodical and disciplined manner. You may plan for the long term and create an investing habit using SIP. By doing so, you may invest each month and prevent yourself from experiencing a financial emergency.
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What is the required minimum lump sum investment?
For a first-time investment, the standard minimum lump sum is 5000. and can be decreased in the next investments. However, it might differ from plan to plan and from Mutual Fund Institutes to Institutes.
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What is the significance of Mutual Fund Ratings?
A rating is a statistic based on a mutual fund’s previous risk and returns record. This enables you to compare funds in the same category across time. Independent agencies such as CRISIL, Value Research, and others rate mutual funds.
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What is a mutual fund SIP?
The most practical approach to investing in a mutual fund scheme is through a systematic investment plan or SIP. By depositing a certain sum at predetermined periods, a SIP enables you to spread your investments across time. Your SIP can be configured to suit your requirements. SIPs are flexible, allowing you to begin and finish them anytime you choose. If you don’t have enough money to invest, you may decide to put your SIP on hold for a while. There are no penalties if you want to stop taking your SIP or suspend it.
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What aspects must one take into account before making a lump-sum investment in mutual funds?
Investors must take their investment horizon into account as well as the fund category they wish to invest in when choosing the finest mutual fund for a lump sum investment. Choose an AMC that provides portfolio management services at a low expense ratio and has a proven track record.
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