Investors often make the mistake of assuming that mutual funds are synonymous to systematic investment plans (SIP). Though the SIP mode of investment is a popular way to invest in mutual funds, it is not the only way. There’s another way how you can invest in mutual funds as well. You can make a lumpsum investment or a one-time investment in your desired mutual fund schemes. While the internet is filled with information about SIP investing, not much is said about the lumpsum mode of investment. In this article, we will understand the things that you must know before you go forward and make a lumpsum investment in mutual fund investments.
What is a lumpsum investment?
Lumpsum investment is a mode of investment where in an investor invests their entire investment amount in one go in their preferred mutual fund investments. As an investor is supposed to make the entire investment at once, an investor usually invests a substantial sum of money. This mode of investment is often favored by leading investors with a high-risk appetite and those who are blessed with a sizeable investment amount.
Things to consider when making a lumpsum investment in mutual funds
Here are a few things that you as an investor must be mindful about before you decide to invest in mutual funds through lumpsum mode of investment:
- Timing the marketsLet’s face it, like it or not, lumpsum investors need to be mindful of the time they enter and exit the markets. This is because the markets are quite volatile, and if you end up investing in mutual funds at the wrong time, you might end up incurring huge losses. However, you must be aware that it is this very volatility that allows lumpsum investors to enjoy significant returns on their mutual fund investments.
- Long haulIf you are making a lumpsum investment in mutual fund investments, then it is advised that you stay invested for a prolonged duration. This is because an investment is likely to finish its entire market cycle over a prolonged period.
- Understand your liquidity and return expectationsOften investors make a lumpsum investment in mutual funds with a hope of earning exceptionally high returns. Though lumpsum investments have the potential to yield exceptional returns to investors when invested in the right investment options at the right time for the right duration, there are also chances that an investor may end up incurring losses. It might not be right to expect your lumpsum investments to offer exceptional returns especially in the short run.
- Patience and perseverance go a long wayOne of the most important principles when it comes to lumpsum investing, especially equity investments is maintaining your equanimity and calm at all times. You must trust your investment decisions and not get swayed by market sentiments. Trust your research and know that the investments that you have invested in will help you achieve your investment goals.
Investors can also use an investment tool known as lumpsum calculator that helps one understand the expected returns their investments are likely to enjoy over a specified period, assuming a constant rate of returns. Happy investing!
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