In the last few years, mutual fund investments have increased in popularity like never before. From тВ╣9.75 trillion in June 2014, the total assets under management have grown to тВ╣61.16 trillion as of June 2024.
And why not?
Mutual funds, after all, offer the best of both worlds. You get to access the benefits of professional fund managers with none of the headaches of managing your own investments. With lump sum investments, in particular, you can inject your savings into mutual funds at one go, and tap into the immediate market opportunities.
LetтАЩs find out more about why lump sum mutual fund investments can be an option worth exploring!
What is a Lump Sum Mutual Fund Investment?
As the name suggests, a lump sum investment means you add a considerable amount of money in one transaction. It could be an amount youтАЩve saved up over the years or even a windfall gain that youтАЩve suddenly come into.
Imagine, for instance, that your long-term stock investment turns into a multi-bagger, and you get an amount of тВ╣10 lakhs! Your first instinct, of course, is to go on a crazy spending spree. But your conscience holds you back, and you decide, instead, to invest in your future.
Incidentally, the market seems to be in a bit of a corrective mode at the moment. You decide, now is the time, and you pick a selection of top-performing equity mutual funds to invest in. The fund managers allocate this capital across various assets according to the fundтАЩs strategy.
The aim?
To maximise returns for your portfolio!
When you invest a lump sum, your money is immediately exposed to the market. This can be quite an advantage during periods of market growth, as all your capital benefits from the uptrend. However, it also means your entire investment is subject to market volatility from the outset.
LetтАЩs see how it compares with other methods of investment.
Lump Sum vs SIP
Now, let me clarify upfront тАФ there is no one correct method in this case. It depends entirely on your convenience and what you prefer.
With SIPs, itтАЩs easier to maintain a consistent saving and investment habit. Small amounts every month тАФ thatтАЩs the essence of it.
With lump sum investment options, however, timing is the key. If youтАЩve got an amount saved up that you can invest readily, and the timing is right, it can be extremely advantageous for you.
Imagine, for instance, if you had invested during the COVID-19-induced market crash. On March 24, 2020, the Nifty50 fell to a low of 7,511. You could have just picked any Nifty50 index fund and added your тВ╣10 lakhs to it.
As of 15 July 2024, Nifty50 is trading at 24,586. This means that it has grown to 3.27 times from those levels.
Your initial investment would have also grown at the same level and reached an amount of тВ╣32,73,332!
Benefits of Lump Sum Mutual Fund Investments
1. Potential for Higher Returns
This is key. If youтАЩre investing in a bullish market, or in a market that is just coming off its lows, you can make higher returns. As youтАЩre investing on the whole, youтАЩll get the entire benefit of the rising momentum.
Consider the previous example of how your portfolio would have grown if youтАЩd invested during the COVID-19 pandemic to understand just how intense the growth can be.
2. Time in the Market
Some investors believe there is no point in timing the market. In the eternal words of Kenneth Fisher, тАЬTime in the market beats timing the marketтАЭ.
This is especially relevant for the best lump sum investment plan. As your capital gets more time to gestate and is locked away for longer periods of time, you can take full advantage of the benefits of compounding. With long-term mutual funds, you can even enjoy exponential growth after a few years!
Strategies for Maximising Returns
Now you know that lump sum investments in the best-performing mutual funds can definitely bolster your investment. The question is тАФ is there any way you can maximise your returns?
1. Market Research
As obvious as it sounds, this is extremely important.
When youтАЩre investing a lump sum, getting your moment right is paramount. You canтАЩt just enter the market at any time you feel, and expect the same kind of returns.
The capital markets are fluid, to say the least, and are always changing. You need to feel the beat тАФ what the investor sentiments are like, which way the momentum is turning, and maybe even which sectors look particularly promising.
For example, in 2024, sectors such as renewable energy and digital technology have shown promising growth. With the Indian government investing heavily in renewable and clean energy, companies in these sectors are booming!
2. Choosing the Right Fund
The process of selecting the right mutual fund is quite different from selecting individual stocks to invest in. Here are a few tips you can consider:
- Performance: Review the historical performance of the fund over various time frames (1 year, 3 years, 5 years).
- Fund Manager: Consider the experience and track record of the fund manager.
- Investment Goals: Ensure the fund’s strategy aligns with your investment objectives.
- Mutual Fund Portfolio Analysis: Go through the fundтАЩs portfolio and review it on a regular basis
Common Mistakes to Avoid
1. Overconfidence
Overconfidence can be a downfall for even the most seasoned investors. You have to stay humble and respect the market. Always understand that just because the trend has been moving in a particular direction, there is no guarantee that it will continue to do so.
So, what is the solution?
Regular reviews!
The concept of investing and then forgetting just does not work. You need to review your investments from time to time, at least on a yearly, or bi-yearly basis.
Assume, for instance, that youтАЩd invested in a sectoral fund that was booming three years ago. But now, momentum is dying out. Investors are becoming more cautious and are withdrawing their money from that sector. The exception is that a downturn is just about to begin.
But you, with your overconfidence, decide to trust your gut and stay invested. Months go by, and you see your portfolio valuation withering away and dying in front of your eyes. Expect by then, itтАЩll be too late, and there won’t be anything youтАЩll be able to do to protect yourself.
Review regularly, and adjust as needed.
2. Lack of Patience
This is one of the most common mistakes that we see in the capital markets. Large companies and even mutual funds often go through long periods of consolidation followed by sharp up-moves. Unless you stay invested, it is practically impossible to capture those returns.
Lump sum investments require patience and a long-term perspective. Market volatility is inevitable and reacting impulsively to short-term fluctuations can erode your returns.
Conclusion
When it comes to maximising your returns, few investment opportunities work as well as lump sum investments in mutual funds.
The key is to stay vigilant and analyse the markets to identify the right time of entry. If you can crack this, not much will hold your portfolio back from reaching for the stars.
Oh, and remember to stay invested for the long term, so that you can enjoy the benefits of compounding and the exponential growth that comes along with it.
And if youтАЩre ready to get started, look no further than Appreciate, the best trading app for your mutual fund investment journey!
