All You Wanted to Know about Lumpsum Investing

 

What do you enjoy more?

  1. Watching a daily television serial OR
  2. Watching a movie in the theatre.

The reason behind asking this question is, the case mentioned above, depict 2 different investing styles.

  1. The Systematic Investing Style via the SIP mode and
  2. The Value Investing Style via the Lumpsum Investing mode.

 

Today, let’s check out the concept of Lumpsum Investing and how can it be used to the benefit of investors?

 

Meaning:

Lumpsum Investing as a concept of investing the available investment corpus at one go, instead of investing in bits and pieces at regular intervals.

For Example:

If an investor has ₹ 1,00,000 available as investible surplus, he can allocate this amount into various asset classes such as Mutual Funds, Equity, ETFs, ELSS, Debt Instruments, etc. as one-time investment, instead of taking the burden of investing a pre-decided amount every month.

 

When does Lumpsum Investing work?

Lumpsum Investing works best when an investor has:

  • A large chunk of the amount available as investible surplus
  • Proper knowledge and understanding of the concept Lumpsum Investing
  • Long Term Horizon for Investments
  • The view that the market is in correction mode and quality assets are available at reasonable prices
  • Cyclical income or Business Income at irregular intervals

 

What are the advantages of Lumpsum Investing?

Effective allocation of Large Amount available to invest:

As the amount available to invest is large, compared to SIPs, it helps the investor to spread the risk across various asset classes and lower the risk of loss with proper asset allocation.

Long-Term Horizon:

Since Lumpsum Investing is done with a long-term view, such investment is likely to fetch the desired returns as it takes into consideration the concept of Time in the market.

Ease of Investing:

Lumpsum Investing facilitates ease of making investments into various asset classes suitable to the investor’s risk profile at one go. Hence, the investor does not carry the burden of managing the corpus for making an investment at regular intervals.

Timing the market:

Lumpsum Investing aids value investing. When the markets are facing correction, the lumpsum investing style helps an investor accumulate quality stocks at reasonable price, unlike the case in SIP.

 

What are the disadvantages of Lumpsum Investing?

Not suitable for investors with lesser investment corpus:

The Lumpsum investing style does not suit the investors who have regular income, more expenses and less surplus available for investments.

Worthless without clarity of financial goals:

If an investor is not clear about his/her financial goals, this investing style may be worthless.

Not suitable for budding investors:

Lumpsum investing is not suitable for first-time investors in the markets due to lesser investible surplus as well as lack of proper knowledge and skills.

Not suitable when the markets are in the bull phase:

When the markets are making new highs day in and day out i.e. when there is a bull run in the market, new investments under the lumpsum investing style may not be fruitful.

 

Remember, SIP or Lumpsum Investing – whichever investing style suits you the best, keep investing and stay invested in quality assets. Make Investwise Decisions and Grow Your Wealth.

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