Best Mutual Funds for Lump Sum Investment in 2022
Investment is a significant part of people’s lives, and mutual funds are one of the most accessible ways to grow one’s wealth. Investing in mutual funds is made as easy as possible with the option to invest a small sum via SIPs (Systematic Investment Plan) or a significant sum via the lump sum method.
This article features information on the lump sum mode of investment. Read further to know about the features, benefits, things to consider, how to invest and the best mutual funds for lump sum investment in India.
What Is a Lump Sum Investment in Mutual Funds?
When investing via the lump sum method, an individual invests the money once and remains invested for a specified time period. In other words, when one has a large sum of money available for investment, they can do it in one go through the lump sum method.
It is a good option for investors with long-term investment goals of around 10 years or more, and have a thorough knowledge of the markets.
Some investors also invest their small amount in lump sum depending on the market condition. While this could work well for an informed investor, generally, in mutual funds it is always advisable to invest with a regular frequency through SIP to generate long term wealth. Further, investments through SIP offer immunity against the market volatility as your investment is consistent through time.
Like any other method, investing in a lump sum comes with its pros and cons. Therefore, assessing a fund’s assets and past performance is important before investing.
Best Mutual Funds for Lump Sum Investment in 2022
The following is a curated list of the top mutual funds for investing in via lump sum:
|Mutual Fund Scheme||3-Year Annual Returns||5-Year Annual Returns|
|Canara Robeco Bluechip Equity Fund (Direct Plan- Growth)||18.27%||14.85%|
|Nippon India Value Fund (Direct Plan- Growth)||20.57%||12.53%|
|Mirae Asset Tax Saver Fund (Direct Plan- Growth)||21.18%||15.61%|
|Quant Tax Plan (Direct Plan- Growth)||40.51%||23.65%|
|DSP Tax Saver Fund (Direct Plan- Growth)||18.68%||13.22%|
|BOI AXA Tax Advantage Fund (Direct Plan- Growth)||24.71%||14.91%|
|Quant Absolute Fund (Direct Plan- Growth)||30.97%||20.20%|
*Returns data valid as of October 21, 2022
Features and Benefits of Lump Sum Investments
- Convenience: When investing via a lump sum, one does not have to worry about payment dates and saving money in the bank every month.
- Investment of a significant amount: One can invest a large amount of money at once through this payment method. The value of this investment increases largely during phases of market growth. The minimum amount for investment via lump sum is Rs. 5,000.
- Long-term goals: Investing in mutual funds via a lump sum can be considered a good opportunity for long-term investment goals. An investment horizon of 10 years works well for investment through this method.
- The volatility of markets: Investing via the lump sum mode can be beneficial for some investors. They can time the markets to buy more units when the NAV is low and sell more when the NAV is at a higher value. This helps them make significant profits. However, this requires a deep understanding of the market.
How to Choose Mutual Funds to Invest in via Lump Sum Method
Investors can consider direct or regular plans to make a lump sum investment in mutual funds. Direct plans involve lower expenses since they are directly provided by AMCs (Asset Management Companies) and do not involve any brokers.
Additionally, one should look into a few things while choosing a mutual fund for lump sum investment. They are:
- Fund’s past performance: It is vital to research the fund’s past performance before investing. The 3 and 5-year returns are important aspects that determine the fund’s stability. It is also wise to assess the fund manager’s past record before making an investment decision. However, you should always remember that a fund’s past performance does not guarantee future returns.
- Costs involved with the fund: It is important to take note of the costs involved with a fund. The costs comprise of the expense ratio and exit load. Actively managed funds have higher fees than the ones that are passively managed.
Lump Sum Investment vs SIP (Systematic Investment Plan)
An SIP (Systematic Investment Plan) is a payment mode which allows individuals to invest small amounts of money in mutual funds at regular intervals. When investing via an SIP, the investment is spread throughout a time period. One does not require a large sum of money to start investing in an SIP.
The key differences between the lump sum method and SIPs are:
|The lump sum method requires a one-time payment.||The SIP method requires disciplined and regular investment.|
|Lump sum investment growth relies heavily on the timing of one’s investment.||SIPs, on the other hand, are immune to market volatility since the payments are spread out across a time period.|
|Lump sums usually require investing large sums.||In SIPs, you can start investing with a sum as low as Rs.100.|
|While investing via a lump sum, unit allocation is based on the NAV of the mutual fund during that particular time.||On the other hand, for SIPs, unit allocation is based on the NAV during each instalment.|
Things to Consider before Making a Lump Sum Investment
Since mutual funds are connected to the market, there are some risks involved with investing. An investor needs to take these factors into account while inspecting the best mutual funds for a lump sum investment. Some of these are:
- Financial position: Before investing via a lump sum, one must assess their financial standing since this payment method requires a large amount of money at once.
- Investment goals: Investing via the lump sum method is a wise choice for long-term investors. However, if you have different goals, it is better to reassess your choice of payment.
- Risk tolerance: Since mutual funds are subject to market fluctuations, one needs to assess their risk tolerance. This can depend on various factors such as income, lifestyle, personal circumstances, etc. When the market is down, investing via lump sum may cause massive short-term losses due to the large investment amount.
Taxation of Lump Sum Investment in Mutual Funds
Taxation of mutual funds made via lump sum investment depends on the holding period and type of investment. Capital gains from such investments would be subject to Long Term Capital Gains (LTCG) and Short Term Capital Gains (STCG) tax depending on the holding period.
For equity investments, STCG tax is applicable at a rate of 15% for a holding period that is less than a year. On the other hand, LTCG tax is applicable at a rate of 10% for a holding period of at least a year. However, gains of up to Rs. 1 lakh are fully tax-exempt.
For debt investments, STCG gets added to one’s taxable income and taxed as per their income tax slab if they hold the investment for less than 3 years. For a longer investment period, LTCG is applicable at a rate of 20% after adjustments for indexation.
The lump sum method may be suitable for investors who are doing well financially and have long-term investment goals. However, knowing your financial goals is crucial to understand whether this investment method is suited for your own financial needs or not.
Frequently Asked Questions
Are there any limits to investing in a lump sum?
No, there are no investment limitations while investing via a lump sum. An investor can decide how much they want to invest. However, for most mutual funds the minimum investment requirement is of Rs. 5,000.
Is it possible to invest monthly in lump sums?
This depends on your financial standing and long-term goals. If you can afford to pay lump sums each month without any significant effect on your daily life, you can opt for it instead of an SIP. You may have to set up a reminder to make such investments regularly.
What are the advantages of using a lump sum calculator?
By using a lump sum calculator, investors can benefit because:
They show an estimate of returns for a particular tenure.
They help investors manage their finances more efficiently with the help of estimations.
It is easy to use and hassle-free. Manual calculations are time-consuming and may result in errors.
What are the benefits of lump sum over SIP?
The benefits of lump sum over SIP are:
Growth prospects: While the risk is higher due to a large amount of investment, higher gains can be seen when the markets go up.
Lack of commitments: Unlike SIP instalments, you only have to invest once and then, you do not need to maintain the minimum balance in your account.