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What is Lumpsum Investment in Mutual Funds?

An investor can invest in mutual funds in 2 ways either by investing a lump sum amount or through a Systematic Investment Plan (SIP). In a lump sum Mutual Fund investment, an investor invests once and the amount remains invested for the desired investment period. A lump sum Mutual Fund investment is a better option for investors who have a long-term investment plan of 10 years or above and have a knowledge of the market. Though Mutual Fund SIP is more attractive as it does not hit the liquidity of funds at once for an investor, investing in a lump sum amount has its own benefits and disadvantages. You must consider doing a thorough analysis of the underlying assets in a MF and its historical returns during market slumps and rises before investing.

Best Mutual Funds for Lumpsum Investment 2022

The following are the best mutual funds for lumpsum investment:

Mutual Fund SchemeType of Scheme3 Year CAGR
Canara Robeco Bluechip Equity FundEquity Fund – Large Cap20.20%
Parag Parikh Flexi Cap FundEquity Fund- Flexi Cap Fund25.10%
Canara Rob Emerg Equities FundEquity Fund- Large & Mid Cap24.40%
Nippon India Value FundEquity Fund- Value Fund23%
Mirae Asset Tax Saver FundEquity Fund- Tax Saving22.40%
DSP Tax Saver FundEquity Fund- Tax Saving21.30%
HDFC Floating Rate Debt FundDebt- Floating Rate6.10%
Aditya Birla SL Money Manager FundDebt- Money Market5.10%
Aditya Birla SL Savings FundDebt- Ultra Short Duration5.30%
ICICI Prudential Liquid FundDebt- Liquid4%

What are the Advantages and Disadvantages of Investing in Lumpsum?

Advantages of Lumpsum Investing in Mutual Fund

  • A lump sum or one-time investment is more convenient. An investor invests once, and for the years to come, they don’t have to worry about instalment dates and saving every month to invest.
  • These schemes are suitable for long-term financial goals, say 10 years and above.
  • The investments are made in the underlying assets in a Mutual Fund. These assets provide a better return in the long term. The earlier the investment is made, the higher will be the return on maturity.

Disadvantages of Lumpsum Investing in Mutual Fund

  • Investing lump sum does not bring an investment discipline to an investor. Once an amount is invested, the investor might settle down even if there is a scope for saving some funds and sparing it for a regular investment.
  • Since the investment is done only once, an investor might not be able to make most of the market fluctuations. With a regular investment, an investor can balance out the ups and downs of the market.
  • If a lump sum amount is invested at once, the amount is locked for the lock-in period selected. In case of emergencies, an investor might be left with no or lesser options to manage funds or end a loan.

What are the differences between mutual fund lumpsum investments and SIP?

The following are the key differences for an investor to choose between Mutual Fund lump sum investments vs SIP:

  • The famous concept of rupee cost averaging is an important decisive factor in differentiating both the approaches of MF investments. When an investor invests in a phased manner i.e. a systematic investment, his investments get a higher NAV when the price goes up and more units allocation when the price goes down i.e lower NAV.
  • The market movements and volatility for a set of assets or the industrial sector is near to impossible. The Systematic Investment Plan approach averages out market movement as the investment period is spread out.
  • The allocation of units is based on the NAV of the MF on the day of investment. When an investor invests a lump sum amount, the units will be allocated based on the NAV at the time of purchase. So the investment is blocked for that NAV irrespective of the ups and downs of the prices of the assets and Mutual Fund NAV.
  • On the other hand, when an investor invests through SIP, the units are allocated at the price or NAV prevalent at each instalment of the investment. This gives the investment advantage of the market movement.
  • On maturity, the final wealth gained will be the number of units available and the NAV at the time of selling the units. A higher number of units of mutual funds would mean a higher wealth gained. Thus, an investor must choose an investment approach which provides a higher number of units.
  • The basic difference between lump sum MF investment and SIP is about the approach. The lump sum investment is about the timing of entry, a continuously growing market would help avoid volatility whereas a falling NAV market can provide a negative impact on investment.
  • The SIP investment approach is about discipline and rule-based investment to make the investment immune to market fluctuations.

Few other points for SIP vs lump sum mutual funds are

ParticularsLumpsum InvestmentSIP Investment
CashflowOne-time investmentRegular, fixed or variable
FlexibilityLowHigh
Cost of investmentHigh, one-time huge investmentLow, due to rupee cost average

When Should You Opt for Mutual Funds Lumpsum Investment?

You must prefer lump sum investment if you have received a lump sum amount and would like to invest in mutual funds if you are well aware of the market and the historical trend of the MF scheme. Alternatively, you can invest systematically over a period of 12 months using a systematic transfer plan (STP). In STP, a fund house allows an investor to invest a lump sum amount in one scheme and regularly transfer a predefined amount into another scheme.

STP or systematic transfer plan is an automated way to transfer money from one MF to another. This plan is ideally chosen by investors who want to invest a lump sum amount and avoid market-timing risk and leverage the market fluctuation. Mostly, the investor who has a lump sum amount and in the end wants to invest in equity-oriented mutual funds, chose this option. The lump sum amount is invested in debt mutual funds and systematically transferred to equity mutual funds when the market is ideal for an investor to invest in equity mutual funds.

Frequently Asked Questions

Is it a good idea to invest lumpsum in mutual funds?

Yes, it is a good idea to invest lumpsum in mutual funds. Moreover, whether you should invest or not depends on the availability of funds and the future needs of those funds. If you have a surplus or a lumpsum amount for investment then you can invest in mutual funds and earn higher returns in comparison to other fixed income earning options. However, before investing you must consider your investment objectives and the scheme’s objective and associated risk.

Is it better to invest lump sum or monthly?

An investment of lumpsum versus SIP depends on the availability of funds and investment objective. If you have a surplus amount to be invested then you can invest a lumpsum amount. If you want to make a systematic and disciplined approach to investing then SIP is a better option. With SIP you can plan for the long term and develop a habit of investing. This way you can invest every month and make sure that you do not have a financial emergency.

How much lumpsum can be invested in mutual funds?

There is no limit to the maximum amount you can invest in a lumpsum in mutual funds.

What is the minimum amount for lumpsum in mutual funds?

The minimum amount for a lumpsum investment in mutual funds varies from one scheme to another. This amount can range anywhere from Rs 500 to Rs 5,000.