A fall in the markets often tempts several mutual fund investors to take a dive into equities and equity-related securities. However, that may not be the best decision. Experts always advise investors to keep their feelings at bay when investing in mutual funds. Rather than being carried away by your emotions, you must take investment decisions based on your financial objectives. This is the basic concept behind investing a lumpsum in mutual funds. Using suitable asset allocation patterns can offer you with a better opportunity to help your money grow at its maximum potential when it comes to lumpsum investment.
Do you have a lumpsum amount to invest in mutual funds? Are you unsure how to go about the same? Do not worry, the following pointers will help you with lumpsum investments in mutual funds. Read on to understand better.
If your financial Goal includes making a significant purchase in the near future
If you plan to make a significant expense in a short span of time, then you must have a conservative approach with your money. These goals are defined as short-term investment goals. Short-term financial goals have a time horizon of anywhere from up to an year to up to three years. To cater to your short-term investment goals, it makes sense to invest a lumpsum amount in a mix of short-duration debt funds and ultra-short funds. Examples include PSU bond funds and banking funds. If you are one of those investors who belong to the lower tax brackets, then you might consider investing in investment options such as small savings schemes or bank fixed deposits (FD).
If your financial goal includes making a significant purchased in the medium term
Medium-term goals can be anything that needs to met between four to seven years. Sometimes they might also be classified as goals that are met up to ten years. If you are risk-averse investor who panics at the thought of uncertainties in the market, then you might consider allotting the majority of your assets to fixed income investment options. However, if you are comfortable to expose your portfolio to a certain degree of risk to earn higher returns then you might consider investing the majority of your portfolio in equities and equity-related securities. In short, it’s always a good idea to factor in your risk appetite before you zero in on your investment options. When you near your goals, you might consider systematically transferring your funds from equities to fixed income securities to protect your capital.
If your financial goal is to make a significant purchase in the long run
These include investors who are looking to invest their money for the long haul to cater to their long-term financial goals such as retirement or saving for their child’s educational needs or marriage. Mutual funds can be a good investment option to cater to your long-term financial goals. You can also invest in other types of investment such as active funds, stocks, index funds, etc. You can also choose to diversify your assets across asset classes (debt, equity, gold, money market instruments, etc), sectors (index funds, bonds funds, etc) and across location (international funds, domestic funds, regional funds, etc.) Investors who are investing for the long run must consider investing a majority of their assets in equities as these asset classes are ideal for wealth creation in the long run.
Irrespective of the type of investment you decide to go forward with, ensure that it aligns with your investment horizon, financial goals, and risk profile. Investing in mutual funds via lumpsum investment must be carried out after judicious planning and research. If you wish to get an understanding of the future value of your investments, you can use a lumpsum calculator. Happy investing!