When Lump Sum Investment Makes Sense?Lump sum investment in mutual funds come in handy in the following situation:
- When you receive a windfall When you get a windfall in the form of a bonus or otherwise, you can opt for a lump sum investment. On most occasions, a big amount received tends to get invested in discretionary expenses, which don’t add to your wealth.
- To fully utilise tax deduction under section 80C Investments up to Rs. 1.5 lakhs are eligible for tax deduction under section 80C. There are many financial instruments, investment in which qualify for tax exemption under section 80C. However, on most occasions, people fail to fully utilise the deduction available under this section.
- Don’t have much money If you don’t have much money to invest in mutual funds but want to diversify your investments, then it’s prudent to opt for SIPs. They help you invest a small, but fixed amount of money, every month. You can start SIP in a mutual fund from as little as Rs. 500 every month.
- Want to test waters before investing Financial prudence calls for testing waters before investing. This is where SIPs help you. By investing a small sum of money every month and tracking the returns generated, you can find out whether mutual funds align with your objectives and risk appetite or not.
- Seek to keep volatility at bay Volatility is an integral part of mutual fund investment. However, SIPs help you spread out the risk over time and keep the volatility quotient low. When you remain committed to SIPs for a long period, the risk associated goes down automatically.
On the other hand, lump sum received if invested, can add to your wealth. However, make sure to remain invested in the long run to make real gains.
So, in such a scenario, you can invest a lump sum to completely exhaust the maximum permissible limit offered by section 80C. Note that in the mutual fund realm, investments in equity-linked savings scheme (ELSS) qualify for tax deduction.
When SIPs Make Sense?SIPs in mutual funds are useful when you:
Explore Various Mutual Funds here.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
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