Mutual Funds: Should You Take The Lumpsum Route For Good Returns?

By | September 28, 2017

Mutual Funds: Should You Take The Lumpsum Route For Good Returns?

Irrespective of your correctness in estimating when the market would be at a supposed bottom, it is difficult to time your entry correctly. Investing in a Mutual Fund through a Systematic Investment Plan (SIP) is thereby regarded as an ideal technique to make your money grow: it doesn’t require you to time the market and helps you in the task of rupee cost averaging.

However, there may be instances where you might consider going the lumpsum route. Some such instances are listed below:

Debt Funds

Since bond prices rarely experience the huge swings that are privy to the stock prices, an SIP into a debt fund is unlikely to offer you benefits similar to a lump sum investment over your choice of investment horizon. This is especially true in case of ultra short-term and money-market funds.

It is also prudent to keep in mind that each SIP installment can fetch tax benefits only after completing three years, apart from having a cumbersome withdrawal process.

Shifting Between Equity Funds

Another time to select the lumpsum option is when you are moving investment from one equity fund to another. You might be invested in an equity fund through SIP and would like to transfer your allegiance to another equity fund for some reason.

Since you have already averaged your investment while channelling money into the initial fund, the money into the second fund can be shifted as a whole. Averaging your money once again may be a redundant exercise.

Sectoral Calls

If you are a savvy investor with knowledge on the intricacies of undervalued sectors, you can go the lumpsum route on a sectoral fund, if you can foresee outperformance in the near term. However, this is a risky ploy and could backfire if the variables for the sector’s success do not come into play as you may have forecasted.

In any case, a diversified equity fund offers you adequate exposure to various sectors of the market with a knowledgeable fund manager at the helm. If you are a conservative investor or don’t wish to invest in a lumpsum manner, SIPs will continue to be a tried and tested technique for you to make the most of your Mutual Fund investments.

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About Adhil Shetty

Adhil Shetty is the Founder and serves as the Chief Executive Officer of Adhil has a Master’s degree in International Relations with a specialization in International Finance and Business from Columbia University in the City of New York, and a Bachelor’s degree in Engineering from the College of Engineering Guindy, Anna University. Adhil is an expert in Personal Finance (Car loan/Home loan and personal loan) and he majorly consults on investment and spends rationalization for the Indian loan borrowers. His guidance is number based with real time interest rate calculations and hence useful for consumer’s real time query.

2 thoughts on “Mutual Funds: Should You Take The Lumpsum Route For Good Returns?

  1. Sanjeev Dadhe

    I stay outside India and visit India only once a year. I find the lump sum way of investing better. I have liquidated all my bank fixed deposits and put the money in balanced funds during last 18 months.

    1. Team BankBazaar

      Hi Sanjeev Dadhe,

      To each his own. Glad that this method of investing works for you.

      Team BankBazaar


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