The phrase lumpsum constitutes a large sum of money. In financial terms, lumpsum investment denotes to a substantial sum of money which is invested in one go instead of breaking down into multiple, regular instalments. Lumpsum investment is quite the opposite to Systematic Investment Plan or SIP mode. An investor can invest via lumpsum method in equity funds or fixed securities depending on their investment tenure, risk profile, and financial and personal goals. Though a lot of individuals invest in mutual funds via SIP mode,a lot of investors are unaware of the benefits of lumpsum investment.
A lumpsum investment is favourable when the shares’ valuations and the markets are low. This article will explain the benefits of lumpsum investments and why an investor should consider the lumpsum mode of investment.
Benefits of lumpsum investment
Following are some of the benefits of lumpsum investment:
- Ideal for long term investment
Lumpsum investment is suitable for investors who are opting to invest for a long tenure. In the case of lumpsum investments, a long term tenure can be considered for a ballpark 10 years or more. However, investors should note that for a lumpsum investment in debt mutual fund, they can choose to invest for a medium-term tenure as well.
- Investing a significant amount
Investors can invest a substantial amount in mutual funds by opting for lumpsum investments. As a consequence, when markets experience a growth period, then the investment values also witness a huge growth as compared to the values of SIP investment.
Lumpsum mode of investing is generally convenient for those investors who have a massive chunk of money available to invest. It is also ideal for investors who fail to plan things systematically and are quite forgetful towards making the regular SIP payments.
- Timing the market
Investors opting to invest for a long-term tenure should always look out for the timing of the market. It is recommended by experts to invest when the markets are already in the slumps and shows the potential for growth. In such a case, investors earn substantially higher returns via lumpsum mode as opposed to SIP mode of investment. However, investors should be mindful and careful that if the investments are made when the markets are at its peak, in such a case, individuals might lose their investments.
To summaries – Be it SIP or lumpsum, investing in mutual funds is more important to meet your life goals. Based on your liquidity condition, choose between lumpsumor SIP way of investing. The Lumpsummode of investing is a way forward for you if you are an experienced investor and can gulp in the fretfulness of holding on your investments regardless of losses during the market corrections. Whatever way of investing you decide to choose, also choose the right mutual fund investments for you. You can also use a lumpsum calculator to gauge the returns earned by you in the future. Happy investing!