Investing in mutual funds can be a serious financial choice for a rookie investor. And then there is the dilemma of where to invest. Mutual fund investments can be divided into two categories: lump sum and systematic investment plans (SIPs). When an investor makes a substantial investment in a mutual fund scheme, it is known as a lumpsum investment. On the other hand, a SIP, or Systematic Investment Plan, comprises investing smaller amounts monthly.
Both of these mutual fund investment approaches have several advantages. A majority of investors prefer lumpsum investments since they have fewer risks and higher returns.
This post will explain what lumpsum investments are, their benefits, and how you may invest as well.
What exactly is a one-time or Lumpsum Investment in a Mutual Fund?
When you invest in a mutual fund in a lump sum, you are allocating a single, large sum of money to one-time mutual fund investment. Rather than dividing it out over time as it does in SIP (Systematic Investment Plans), this is done all at once.
Lump-sum mutual fund investments are commonly picked by major players and investors who rely heavily on company stock appreciation for capital building. A lump sum mutual fund investment can be an excellent option for an individual with a high investment amount and a high-risk tolerance.
For example, one year, you receive an unusually substantial bonus. You still have Rs.75,000 to invest after deducting all of your pre-planned commitments and investments. Because the sum is excessive and you have no definite intentions for it, you decide to take a chance with it. You could put all of your money into a single mutual fund plan of your choosing. It might not be the same as investing Rs.6,250 per month for a year.
What are the benefits of a lump sum investment?
Before investing in mutual funds, take into account the following characteristics:
1. Basic Investment:
As a lump sum investment is a single transaction, most mutual funds need a minimum commitment of Rs.5,000. However, you can generally make further investments in multiples of Rs.1,000 in the same plan after the initial lump sum payment.
2. Time Period:
You can keep a lump sum equities mutual fund investment for a prolonged period. A minimum of five years is recommended by financial experts. If you want to invest in a debt fund or a liquid fund for short-term growth, you could do so.
3. Market volatility:
If you put substantial amounts of money in one area, your investment may suffer if markets fall. The key, though, is to keep the money for an extended period.
Market volatility has the same chance of growing or losing your investment. The advantages of a lump-sum investment are evident when the market is at a low point. It is because you can acquire more mutual fund units at a lesser price and then sell when the markets improve, resulting in a significant profit.
How to invest in lumpsum?
If you’re thinking about investing in a lump sum mutual fund, you may either consult a financial advisor to do it for you or contact the asset management organization directly.
To open a mutual fund account, you must first complete the formalities, such as filling out the KYC form and submitting documentation.
Consider the market scenario after that. Investing a large sum of money at a time when the market is at its peak can result in considerable portfolio depreciation in the future. Instead, wait for a more favorable market environment with lower valuations.
Meanwhile, you may put the money into a debt fund, a liquid fund, or traditional savings alternatives. Investing in a Systematic Transfer Plan (STP) is yet another option. You can use an STP to invest a large sum in a liquid or market fund, from which a fixed amount is transferred to an equity fund every month. It is comparable to a SIP, but you also have the opportunity to earn returns on your initial lump sum investment.
Before investing, do your homework and compare several mutual fund strategies. Before you start funneling money in, think about your liquidity needs and your investment goals.
What Are the Benefits of Using a Lump Sum Calculator?
This calculator can be used by mutual fund investors to calculate their expected returns. Before diving into the advantages of using this calculator, it’s essential to identify the different sorts of returns available for lump-sum investments.
- Absolute return
- Total return
- Annualized return
- Point to point return
- Trailing return
- Rolling return
To get the highest returns from mutual fund investments, an investor must thoroughly comprehend each of these kinds of returns.
Now that you’ve learned about the different types of returns, let’s look at the advantages of using a lumpsum return calculator:
- This calculator estimates your returns throughout your investment.
- It is very convenient. This calculator is simple enough for even the most inexperienced person to use.
- It provides a reasonably accurate approximation.
- An MF lumpsum calculator allows an investor to better arrange his or her finances based on the expected return at the end of the investment period.
You can use an online mutual fund lumpsum calculator available on the MyGoalMySip app (available on Play Store & App Store), to calculate the expected returns on your lumpsum mutual fund investment.
How to Calculate Mutual Fund Returns?
To evaluate the expected return on investment, each lumpsum calculator has a unique algorithm. It’s simply a compound interest formula with the number of times interest is compounded in a year as one of the parameters.
For experienced investors with a high-risk tolerance and a substantial amount to invest, lump-sum mutual fund investments are the way to go. However, if market volatility and a drop in portfolio valuations make you nervous, you should think again about going this path.
Note: Mutual fund investments are subject to market risks and thus cannot be estimated with absolute precision.
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