Lumpsum investing is a departure from most of the typical advice on how to invest money.
Rupee-cost averaging, a slow-and-steady method, is a terrific way to create a fortune over time. However, there are situations when an investor has a large sum of money accessible to invest all at once due to an inheritance, a tax return, or just good fortune. While the money might be Rs 10,000, Rs 100,000, or even more, deciding whether to invest the total cash at once or gradually over time can be difficult.
Understand the volatile market
The stock markets are designed to be volatile. It’s modest at times and a lot at other times. A correction occurs when volatility accompanies a downward trend. At any given time, though, a 2-5 percent adjustment is usual. This should be considered in any investing strategy. When it hits 10%, it’s time to examine strategies for making the most of the circumstance.
Strong bounce-backs occur after deep corrections. Some rare instances over the previous two decades include a robust rally following the dot com crash in 2000, a great tumble after the Lehman Crisis in 2009, a reversal in mid and small-cap segments during 2017-18, and the recent bull surge after the Covid-19 interruptions. Those who did not worry and stayed invested made more money. Those who took the chance to buy at a cheap price got wealthy.
Watch Out
When redeeming units from equity mutual fund schemes, be careful not to upset your overall portfolio allocation since the redemption proceeds will have to be redeployed in another equity scheme, which will necessitate going through the entire process of selecting the correct method to invest in. Unless your allocation requires a modification, try to retain your original levels of equity exposure.
The temptation to make improper hasty judgments may be enticed by frequent study and tracking of mutual fund performance. Allowing a drop in NAVs to encourage you to stop SIPs or redeem units from a fund is a bad idea. When the market drops sharply, invest in a lumpsum amount. A yearly assessment that compares the fund to the benchmark and category rivals would undoubtedly be beneficial.
Know your Investments
The lumpsum investment method is putting a larger sum of money into a mutual fund plan of your choice all at once. This is the best option for you if you have a substantial corpus or have access to a comparatively greater investment amount. Furthermore, your risk tolerance must be higher because you are putting a larger corpus in the program rather than making smaller periodic contributions.
Don’t redeem your investments
It is not a good idea to retrieve your investment until you require money or your financial goal has been met. Market-shattering should not be used as a justification for redemption. Continue to put money into it. You may contemplate partial redemption if your objective is completed within a year or if you have a true financial need.
Conclusion
Where should you put the lump sum of money? A typical investor should only invest in appropriate programs for his time horizon and risk tolerance. You can invest in a big cap plan, for example, if you have a seven-year investment horizon and a conservative risk profile. You can invest in Flexi-cap funds if you have modest risk tolerance.
Some investors, particularly well-informed, invest in a topic or industry they believe would gain the most. We don’t recommend sector plans to regular investors since it’s difficult to foresee when they’ll enter and quit.
