With financial institutions offering a diverse range of investment options, choosing the right tool requires careful consideration and proper planning. This is because your earnings depend on an array of factors, including the mode of investment. 

 

Today, you can pick from either a systematic or lump sum investment mode, with the former having several variants. Each of them are tuned to cater to specific investment strategies and offer much-needed flexibility. 


On the other hand, the lump sum investment is one many investors are familiar with and often choose. While it can be a smart option, this investment mode has its upsides and downsides. As such, it is imperative to learn all you can about it, and the various lump sum investment options you can access.

Lump Sum Investments: What are they?

If you have a large amount of funds available and deposit them in a single investment tool, it is called a lump sum investment. For example, assume you have ₹25,000 and decide to open a fixed deposit (FD) with it, this means a lump sum investment has been made. 

 

Similarly, if you plan to invest a huge amount in money-market instruments such as mutual funds, this is also referred to as a lump sum investment. Simply put, a lump sum is a mode of investment where an individual makes a single transaction rather than multiple, regular payments. 

 

Naturally, lump sum investments require you to have a higher investing corpus to get started, and therein lies a problem. You need time to accumulate the money, and this undertaking alone can pose as a roadblock, unless you gain a sudden windfall.

Who Should Consider Making a Lump Sum Investment?

Investing a huge amount in a single financial instrument has its risks, particularly if you are investing in mutual funds, since they’re vulnerable to market conditions. This is because lump sum investments require you to time the market properly. Failing to do so could result in capital loss down the line. 

 

As such, lump sum investments in mutual funds are generally recommended for seasoned investors. For other instruments that aren’t linked to the market, such as the fixed deposit, a lump sum investment is suitable. This is because these are fixed-income instruments that have low risk exposure.

When are Lump Sum Investments the Right Option?

While investing in market-linked instruments, a lump sum investment may be ideal when the market is bullish. This can help you earn higher returns, considering that the market outlook is likely to improve with time. 

 

However, in a volatile market scenario, there is a huge risk to your invested amount, especially when a large sum is involved. In a turbulent economic climate, a lump sum investment can be ill-advised for regular investors as it poses a high risk of capital loss. Here, a systematic mode of investing offers the benefit of Rupee cost averaging, which is far more efficient. 

 

If you decide to go for a non-market-linked tool, consider opting for lump sum investment with your idle surplus. This amount can vary for each individual, as it is based on your budget and financial obligations. 

 

Instead of leaving a large sum of money in a low-yield savings account, try investing it in a secure, fixed-income instrument like FD. Here, a lump sum investment will help you earn lucrative interest returns rather than having your corpus’ value eroded by inflation.

Pros and Cons of Lump Sum Investments

Before opting for the lump sum investment method, consider its various benefits and drawbacks. 

1. Pros  

  • Offers convenience as it is a one-time undertaking

  • Helps generate better returns with the power of compounding

  • Requires you to pay minimum charges 

  • Provides options like lump sum investment with monthly income (Post Office Monthly Income Scheme, FD with monthly returns, etc.)

2. Cons  

  • Market-linked tools like mutual funds face high risk during volatility  

  • Requires you to invest a sizeable amount in one go

Best Lump Sum Investment Plan for the Amount You Invest in

The option for lump sum mode is available with many investing vehicles, such as equity funds, debt funds, FD, public provident fund, and much more. Each of these options have their own advantages and disadvantages. 

 

To find the best lump sum investment plan for yourself, factor in the pros and cons based on your financial goals. For instance, if the objective is to save on tax, you can invest a lump sum in an equity linked savings scheme. Here, you enjoy tax benefits while earning decent returns. 

 

Choosing the right mode of investment is key, and it depends on you. Simply put, lump sum investments in the money market are better suited for seasoned investors. However, novice investors can invest in the same via systematic options.

FAQ on Lump Sum Investments

What is the difference between lump sum and SIP?

When investing through a lump sum mode, you deposit a large amount in one go. On the other hand, SIPs require investing small amounts at fixed intervals.

How can I make a lump sum investment?

You can opt for a lump sum investment mode while investing in mutual funds. Select the option of a lump sum payment mode instead of SIP when filling out the registration form. However, if you opt for fixed deposits, the only option available is lump sum investment.

Which is more beneficial, lump sum or SIP?

Both investment modes are beneficial for investors based on your financial goals. When you opt for lump sum, the power of compounding comes into play. This will help you earn better returns compared to SIPs.

What lump sum investment option is better?

Fixed deposits are one of the best lump sum investment plans, since they offer secure and reliable returns, away from market volatility. However, if you plan to invest in mutual funds, opt for debt funds that generate fixed returns over a specific investment horizon.

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