“I have got Rs 2 lacs to invest. How should I invest?” I get similar questions very often in e-mails or comments section. In this post, I will not delve into products you should be investing in. That depends on many parameters including but not limited to your goals, risk appetite, risk taking ability, cash flows and existing assets and liabilities. I trust you to figure this out.
The question I will try to answer is how you should invest the amount. Should you invest the amount lump sum or should you spread this investment over a few weeks, months or years? What should you do? I will limit my discussion to mutual funds.
What if you had to invest in a debt fund?
If you need this money in the short term, don’t think much. Put the money in a liquid, ultra-short term and a short term debt fund.
In fact, if you have to invest in debt funds for any reason (say, asset allocation etc), invest lump sum.
With any debt product (and not just debt mutual funds), invest the amount at one go.
What if you had to invest in an equity fund?
This can get tricky. What if you invest lump sum and markets move downwards thereafter? Should you invest in a different manner?
You have three options:
- Invest the amount lump sum (at one go) at the current market level.
- Put the money in a savings account and start SIP for a fixed period. Alternatively, you can put the money in a liquid fund and start a STP into an equity fund. Under STP (systematic transfer plan), a few units will get liquidated in the liquid fund on a specific date each month and get invested in an equity fund from the same fund house.
- Put the money in savings account or liquid fund and invest in an opportunistic manner (at one go and over multiple installments).
Do note risk of investing in equity markets is same irrespective of mode of your investment (lump sum, SIP or STP). By not making a lump sum investment (and taking SIP or STP route), you merely avoid putting the entire amount at one level.
You can incur losses in equity markets irrespective of the mode you choose to invest through.
When would you invest lump sum?
You first need to figure out a threshold beyond which you will not invest lump sum (at one go).
The threshold can be based on many parameters. I will only list down a few.
- A percentage or multiple of your monthly income. Example: You will not invest lump sum if the amount is greater than your 2 month salary.
- A percentage or multiple of your monthly investments or savings. Example: You will not invest lump sum if the amount is greater than 6 times your monthly investment
- A percentage of your overall investment portfolio. Example: You will invest lump sum if the amount is less than say 5% of your portfolio.
There is no formula to find the threshold amount but I am sure all of us have some benchmarks to decide the level.
An aggressive investor may not mind investing even 15% of his portfolio at one go. On the other hand, a conservative investor may just not invest lump sum. Depends on your risk appetite.
Also, consider your risk taking ability for this very investment.
For instance, let’s assume your annual income is Rs 15 lacs and have a portfolio of Rs 40 lacs. You invest Rs 6 lacs per annum. You receive a windfall of Rs 3 crores from the sale of a property. You want to invest the amount in equity funds. In such a case, it is not advisable to avoid lump sum investment in equity funds. Rs 3 crore is way beyond any threshold criterion that you may apply.
If you mess up this investment, you may simply not be able to recover from this kind of loss. The amount is 50 times your annual investment and 7 times your total portfolio.
It is better to split the amount and spread over a few months or years.
Read: Myths behind Mutual Fund SIPs
What will you do?
Let assume you have an amount which is beyond YOUR threshold and you do not want to invest lump sum. Which option will you choose? Option 2 or Option 3?
To be honest, neither is better than the other. Choice depends on your comfort level.
From what I have seen, new investors are comfortable with the second approach because the investment is automated through a STP and market movements do not affect their decisions. Part of the credit also goes to smart media campaigns where systematic investments (especially SIP) have been projected as “You cannot go wrong” approach.
Do not get me wrong. I make bulk of my MF investments through SIPs. In my opinion, SIP is the best way to invest for retail investors.
Third approach is suited to disciplined investors. If you are an experienced investor and have a view on markets, then the third approach suits you the best. If you feel the markets are overvalued at the moment, you can wait to invest till the market valuations become reasonable. You can also use technical outlook to make such investments.
Alternatively, if you think that the markets are undervalued (or are at a strong support level), you can simply employ the first approach i.e. invest the entire amount at current levels.
By the way, in our country, everyone has a view on market. I am talking about those who have the skills and time to form a rational view on markets. Do you have such skills? Well, you are the best judge.
What do I do (for my portfolio)?
I always prefer the third approach. For any amount that I have to invest in equity funds outside of my SIPs, I use the third approach.
So, my threshold is quite low at 1-month investment.
I put the amount in a liquid fund or an ultra short term debt fund and look for lower levels to invest.
If I feel the markets have been beaten down badly when I get the funds, I may invest the entire amount at one go (first approach).
How much time do I give myself to invest?
I do not put a timeframe for investing. I use such corpus in an opportunistic manner. I am willing to wait for months or may be even years (not sure of this). It is a tricky approach. In a sustained uptrend, you may simply keep waiting and miss the entire up movement. Moreover, emotions may play a part. Even when the markets have gone down, you may simply keep waiting for even lower levels.
I cannot do anything about the first issue where markets simply keep going up. However, about the second issue, my levels of investment are pre-decided. I make note of levels (at least mentally) where and how I would invest. And I stick to the discipline. I break down the amount in a number of installments (with each installment at least as much as my 1-month SIP investment).
For instance, if I had lump sum of Rs 6 lacs to invest, I will invest Rs 2 lacs at say Nifty level of 8,000, another Rs 2 lacs at Nifty level of 7,500 and the remaining at 7,000. At the moment, Nifty is hovering between 8,500 and 8,700.
I run the risk that these levels may never come but I am fine with it. I am willing to wait. I will earn some returns on my liquid fund investment. Keep in mind I have my SIPs running.
Please understand this is just an approach I am comfortable with. I am not saying this is the best approach. In fact, many may consider it a foolish approach. So be it. Remember personal finance is personal.
You may put a time frame for making such investment. For instance, if you do not find good levels to invest in the next six months, you can invest the entire amount after six months or may shift your investment levels.
There is no right or wrong way. It depends on what you are comfortable with.
For instance, the simplest is the asset allocation approach. Under the approach, you invest the entire amount at current levels in equity and debt funds of choice. And you are done. The breakup between equity and debt funds shall be line with the desired asset allocation.
How do you invest lump sum amount in mutual funds? Please let me know in the comments section.
64 thoughts on “How to invest lump sum amount in mutual funds?”
Hi Deepesh
Good article. I plan the sane approach. which one will you prefer to park your money till the market correct, Liquid fund, Dynamic bond fund or Arbitrage fund?
Thanks Santosh.
Please do share the post with friends and family.
Dynamic bond funds are out of question.
I prefer liquid fund over arbitrage funds.
Nice article. I invest in same manner too 🙂
Thanks Mohit!!!
Good article !
For lumpsum invest . PayEZZy is good or online banking ( for MFU) ?
I prefer PayEezz.
If you can please give me some input why it’s better than IB . ( its for understanding only .)
Hi Sudam,
I didn’t say PayEezz is better. I said I prefer PayEezz.
Internet banking is equally good if you are comfortable.
I am not quite comfortable with failed transactions, session expiry, payments made but not received etc.
My time gets wasted following up and figuring out the issue.
today market is down, I want to invest 50000 today in balance fund(lump-sum amt. ) it is advisable? Please give me answer
Bhavin,
It is always good to invest in equity markets when the markets are going down.
The choice of funds and the quantum of amount to invest will vary across investors.
Do note it does not mean that you can incur losses even if you invest on down days.
Hi Deepesh,
I had got a lumpsum of close to 50 lacs and I have invested in the following funds: Please let me know if this makes sense.
1. HDFC LIQUID FUND MONTHLY- 5 LACS (I HAVE DONE STP OF 50K TO HDFC MIDCAP)
2. BIRLA DYNAMIC BOND – 5 LACS (I am getting -3% return)
3. BSL CASH PLUS Dividend Direct – 5 lacs (I am getting 8% return)
4. ICICI Liquid Growth Direct – 9 lacs (getting 6.86% return)
5. ICICI Liquid Plan Direct Monthly Div – 7 lacs (5% return)
6. ICICI Arbitrage Direct Grwoth – 5 lacs (6% return)
7. ICICI Dynamic Bond fund – 12 lacs (1.6% return)
Please let me know whats the best strategy get more return. I had put this money in Oct since the market was going down.
Thanks
Vik
Dear Viki,
All the mentioned funds are debt funds and will have little correlation with equity markets going up or down.
Hello Deepesh
Really appreciate your time to answer to all the queries.
Just need some valuable advice. I live in UK, and want to inveat in India, I want to invest 2 lac, which funds would you advice me to invest.
Hi Sam,
Depends on your risk profile and investment horizon.
If you are investing for short term (less than 5 years), suggest you pick up a debt fund.
Or else pick up an equity fund (assuming you can and are comfortable with volatility).
Hi Deepesh
Which equity MF wud you recommend ?
Sir please suggest how to invest 1lac for a relative for his child for long term period of 10 yes in equity fund. Through whom he can invest in lumpsum mutual fund
Dear Nandini,
Please understand investment advice can’t be given in such manner or based on such limited information.
Ask your relative to approach a financial planner/MF distributor/SEBI RIA.
If the goal is more than 10 years away, equity exposure should be considered.
Hi Deepesh,
I have to invest a lumpsum of 3 Lakhs for my Mom in to a debt fund as I just got an FD matured. I have already put some funds last year in BSL Dynamic, Franklin Accrual Bond, SBI Dynamic bond etc.. Looking at you past advice to not invest in Dynamic bonds. Pls advice where can I invest the same now. Since it is for a Sr Citizen I do not prefer Equity. The term Period is 3,5 Years
Hi Ashutosh,
Can’t offer specific investment advice.
A lot depends on what she is investing for.
You can try out Ultra short term deb funds that invest in very high credit quality securities.
Alternatively, if her income falls below Rs 3.5 lacs, she can very well do with SCSS (if she needs regular income and liquidity is not high on priority).
Thanks Deepesh for you Advice. I will got for the Ultra Short term Funds and that would be helpful as SCSS is not viable due to its TAX Treatment to senior citizens.
You are welcome, Ashutosh.
My dad just few days back invested lumpsum amount of 2 lakhs in icici pru balanced fund.He invested on the advice of the RM i think he doesnt adviced him wisely and my dad put all 2 lakhs in one go in a single fund.
Can u plz suggest should he switch or split this investment or sell 60% and invest again when market came down.
Sir,Please advice.
If he has already invested, think he should stay put. I hope the investment is for the long term.
Thanks sir for your prompt reply.Sir,my father is retired person and his investment horizon is short to medium.Please suggest some funds in which he switch his invstmnt.
Regards
Sanjay
In that case,he shouldn’t have invested in this fund in the first place.
I wouldn’t comment on whether he should switch or not.
However, in the future, if he invests for short to medium term goals, suggest he invests in Ultra short term debt funds that invest in high credit quality securities.
And he should not go to a Bank for investment advice.
Ask him to visit a local mutual fund distributor, explain your case and seek advice. You should also accompany him.
If he is looking for stable returns and regular income, senior citizens savings scheme may be a good choice too.
Thanks a lot sir.I appreciate your suggestions.Thanks again.
Dear Mr Deepesh, I must appreciate your efforts in giving prompt answer. I have lumpsum of 30lakhs which i intend to invest in mutual fund over a period of 12-18 months. Is this period ok? Since this money is lying in savings account, i want put in Liquid/short term debt fund. I have selected few, I request you to see and suggest if any changes needed or continue with it.
1. BSL cash plus
2. ICICI pri liquid or HDFC Liquid Fund
3. Franklin I Ultra short Bond fund
Should I also go for short term debt funds? if yes, are the following funds good choice?
4. BSL short term Fund
4. Franklin I low duration fund
I am planning to divide the amount between these funds and strategically transfer to Equity MF’s
Also, should I have dynamic fund in my SIP portfolio? I will be investing around 20% of lumpsum in ICICI pru long term or BSL dynamic bond.
thank you.
regards
Hi Deepesh,
It seems you have an immense knowledge on investments. Your articles are very good.
I have one question. Can i do a lumpsum investment in a Diversified MF or equity MF and do an STP with the same fund? I am ready to bear the exit load and pre maturity tax.
Thanks Santosh!!! I am still learning.
You want to do STP from an equity fund to another equity fund?
Yes Raghav, STP from equity to another equity.
Hmmm…in what situation would you want to do that?
Btw, you can do that. Just that I cannot fathom the strategy.
Hello Deepesh. Nice to see the way you explain and giving the information.
I want to invest around 5 lakhs for 3 years , what option may be good for me.
1) invest all in a single fund (Like ICICI Pru BAlanced fund or any mid cap fund)
Or 2) should I select 3 funds 1.5,1.5 and 2
or 3) FD.
Please suggest with fund also.
Thanks
Thanks Raj.
If you are investing for 3 years, pick up a debt fund.
Equity fund can be tricky.
Deepesh, Thanks for prompt reply. SO you mean FD or some in debt fund need to invest. Please suggest few funds.
If I will take a time horizon for 5 years then should I go ahead with equity , some balance fund. If yes. investing in a single fun or multiple fund will good.
Mutual fund 1year 40.second 25 .3rd 15.4thyear15 and 5th year 15 return so 1 lakh invest.so after 5 year calculating return all system please calculating all mutual fund return this systum
HI Manish,
I didn’t get your question. Can you please elaborate?
आप चाहें तो अपना सवाल हिंदी में बी पूछ सकते हैं.
Hi Deepesh,
I invested lumpsum total Rs. 9,20,000 in 4 different Debt funds through MFU of 2,30000 each. I also applied for STP of the same AMC’s in 4 different equity funds for each. Investment type monthly variable, start month Apr 17 end month apr 18.
Ideally the STP should have been divided in 12 to 13 months on variable basis based on market condition. However the STP’s which have happened are only on the appreciation amount.
How does the STP work? Does it invest only the appreciation amount from the debt fund to equity??
Please clarify..
I have been chasing the MFU support team but have not received satisfactory answers. I have raised several complaints through the MFU portal, but nothing has been resolved as of yet.
Kindly guide me.
Hi Santosh,
In you choose Fixed STP, units worth the specific amount get redeemed and get invested in another fund.
Under Variable option (flexi STP) , amount gets invested as per a pre-defined formula.
There is also a concept of capital appreciation STP. In that mode, only the appreciation amount get transferred.
As I see, Variable should have meant Flexi STP but a capital Appreciation STP has started.
MFU is merely a transaction platform. Quite possible the correct information has not been passed to the AMC.
Moreover, there is no standard nomenclature.
You can cancel the STPs and start new ones.
You can write or tweet to V Ramesh, CEO, MFU. You should get a swift response.
Dear sir,
Appreciated to see your valuable advices.
I am investing every month 90000 through SIP. I have finalized total 12 installment. Still I have finished 2 installment.
I would like more 300000 through lumpsum.
So which Nifti rate will be suitable for me?
When I should invest?
Your valuable advice will be help full for me.
Best Regards,
Shailesh
Thanks Shailesh!!!
I can’t comment on good or bad market levels.
Hello Deepesh,
Can you comment on whether it is possible to lose money on liquid funds? I had invested 7L in Taurus Liquid Fund monthly dividend in Oct 2016 and when I redeemed in Jul 2017, I lost close to Rs.22,000. Not sure what happened. Thanks!
Hi Sam,
Liquid funds invest in debt instruments from companies. So, if one of the underlying securities defaults, there will be impact on NAV.
And you can lose money.
Something similar happened with Taurus Liquid Fund. There was default by one of the companies.
Suggest you go through the following post.
https://www.personalfinanceplan.in/mutual-funds/dont-ignore-the-risk-in-debt-mutual-funds/
Thanks, Deepesh. That helps. I am wondering if I subscribe to one of your offerings, will you be able to advise on where to invest. At this point, I am not looking for an all-out financial plan, but sound advice on where to park my surplus funds.
Hi Sam,
Let’s discuss this
Please drop an e-mail at the id (support) given at the top right on the page.
can we start STP with Birla SL cash Plus any balanced or equity based fund of same comp without having exit load?
Hi Ramesh,
With STP, the exit load, if any, on the switch-out scheme will be applicable.
As I see, BSL Cash Plus is a liquid fund. Therefore, no exit load issue.
Hi Deepesh,
I am 50 yrs old and doing SIP in BSL MIP II weailth 25 Growth direct to accumulate Rs.36 lakh for getting regular income . I think balanced funds are better than MIP in long term. Could you please suggest an option to invest this money to get better return after 5 years through SWP. I have running SIP in Tata balanced,ICICI pru value discovery,BSL frontline equity and UTI Mid cap(All are regular plan growth option for retirement corpus)
Hi Kumar,
Half-baked advice based on limited information can only harm you.
Suggest you seek professional advice.
MIP typically will have lower equity component than balanced funds. Therefore, balanced funds have greater growth potential over the long term. However, that comes with greater risk.
I have invested 40 k in HDFC Mid cap opportunities fund, 40k in Birla sun life small and mid cap fund, 40k in DSP black rock small and mid cap fund, and 50 k in reliance small cap fund. All amount in lump sum amount. Please suggest if this portfolio is fine?
All are mid or small cap funds. Suggest you work with an advisor.
Hi deepesh
I hv 50 lacs to invest in mutual funds n my aim to take a mnthly payout of 50000 prr month .which fund is best suited for me
Hi Poonam,
Monthly payout of Rs 50,000 means Rs 6 lacs per annum.
That means an annual return of 12% per annum (rather year after year) on Rs 50 lacs of corpus.
I assume you do not want to eat into the corpus.
Not easy.
You will also be exposed to Sequence of returns risk.
Suggest you go through the following post.
https://www.personalfinanceplan.in/opinion/financial-planning-retirement/
Suggest you talk to a SEBI RIA. He/she will be able to guide you considering your needs and risk profile.
Half-baked advice can land you in trouble.
Hi Deepesh,
I am a 25yrs old ready to invest 2.5Lacs lying in my savings account for a period of 1-2 years. Can you please suggest me some investment schemes which can give atleast 10% returns in a period of 1-2 years. Please suggest the type of mutual funds to invest in and for how long.
Thanks,
Tejaswini Ganti
Hi Tejaswini,
There is no guarantee of returns in mutual funds.
If you want to invest only for a couple of years, suggest you invest in a debt fund.
You can invest in a good credit quality ultra short term debt fund.
Hello Deepesh
I want to invest 50K lum sum in mutual fund just to save tax 80 c .i dont know which fund i have to choose . I want min locking peroid .
Plz suggest
Amit
Hi Amit,
You can invest in any ELSS scheme. The lock-in period will be 3 years.
Hello Deepesh,
Very good article!
Need your advice on investing 25L lump-sum amount without much of tax burden. Could you please suggest the best way? I am open for both equity and debt investments.
Thank you,
Suvarna
Thanks Suvarna!!!
There is no best answer. I have discussed all the possible way in this post. We don’t know which approach will work out to be the best.
Even equity investments will now be taxed.
I don’t know what you are investing for.
Suggest you work with a financial advisor (preferably SEBI RIA) to work out a plan.
Hello there,
Thanks for your advice, this investment would be for children’s future who are 8 and 4 now.
Thanks
Suvarna
Hello Deepesh,
I am planning to invest 4 Lakh via lumpsum in MF for 15-20 years.
Please suggest how much percentage i should invest in each of below categories (out of 100%):
Hybrid: Equity-oriented
Mid Cap
Small Cap
Large Cap
I am planning to invest like below please suggest is this ok?
Hybrid: Equity-oriented 20%
Mid Cap 25%
Small Cap 25%
Large Cap 30%
Thanks,
Mithun Kadam
Hi Mithun,
The overall allocation looks ok. Perhaps, you can reduce mid and small cap allocation.
Btw, this is only for your equity investments. Hope your asset allocation is fine.
Whether you should wait or make lumpsum purchases right now is a different question.
Please consult a SEBI Registered Investment Adviser.
Hello Deepesh,
Thanks for response.
Should i invest lumpsum amount right now or should i wait for some time?
Thanks,
Mithun Kadam
Dear sir
I would like to invest lump sum of Rs 10 Lakhs in MF for a short-term duration (for 1 year) As per current market trend can you please suggest me the best product which I can opt for
Thanks
Vishnu
Pick up a good liquid fund.