When it comes to mutual funds investment, there are two options for fund allocation in the scheme you chose. Those two investment options are systematic investment plans or SIPs and lump-sum investments. Under SIPs, a portion of your account balance is deducted every month on a specified date for the purpose of investment in the mutual fund scheme. Moreover, you could also opt to use the standing instruction feature with systematic investment plans. With this feature, a specific sum of money will be automatically deducted from your account on an already-fixed date. Standing instruction as a feature ensures that even if you forgot to make the payment, the transaction is carried out smoothly.
In firm contrast to SIP in terms of nature are lump-sum investments. In this mode of investment, you need to pay for the mutual fund investment in one go instead of in regular instalments as is the case of SIPs. Regardless of the cost required for the purpose of investment, you need to pay all of it at once. Therefore, it is of utmost importance that before opting for this mode of investment, you should make sure that you have access to the required investment amount. Otherwise, you need to make arrangements for the payment.
Are there any features of investing in mutual funds through the lump-sum mode?
- Instead of paying in regular instalments, a lump-sum is an amount of money that’s paid all at once.
- For a lump-sum investment, all that’s required of you is to make sure that you have the entire money at your disposal. Apart from access to the required amount of investment, it is also necessary that you should have higher risk tolerance.
What are the important things to remember before opting for this mode?
Listed below are some of the things you should keep in mind in case you are thinking of choosing the lump-sum mode for your mutual fund investment:
- Please make sure to determine your financial goals:
The definition of a financial goal is that it is a monetary target that you want to achieve over time. Aims such as accumulating corpus for your loved one’s higher education, retirement, marriage, and foreign vacation can serve as an example of a financial goal. Determining financial goals will provide you with a clear idea of how much to both save money and invest regularly for achieving your life goals. Financial goals can also help you in providing direction to your investments and thereby formulating an optimum asset allocation strategy based on the presumed rate of return, your risk appetite, and your time horizon. Therefore, identifying financial goals is vital if you are considering any type of investment but it is absolutely essential for lumpsum investments.
- Ensure that you can access the required amount of investment easily:
As you may know, lump-sum investments are considered a one-time payment. Hence, in case you are thinking of opting for the lump-sum investment mode, then, you need to ensure that you have the necessary balance in your account or can access it easily.
For what type of mutual fund can lump-sum be used for a tenure of five years?
You could use lump-sum mode for any type of mutual fund scheme. But one of the investment schemes you can use the lump-sum investment mode for is debt funds. One of the reasons for you to consider debt mutual funds is that they can provide better returns than other investment options such as fixed deposits. Furthermore, these funds are highly liquid and can be redeemed easily.
In case you are still having doubts, please make sure to get in touch with a financial expert. Happy investing.