Mutual Funds: Introduction
Mutual funds comprises resources pooled by numerous investors, which are invested in various financial instruments to generate quality returns. These financial instruments include equities, debt, derivatives, and other capital market securities. There are numerous Asset Management Companies in India that offer investors a myriad of mutual fund schemes to choose from, and earn high returns.
The returns generated from the mutual fund investment are distributed proportionally among the investors. A professional and competent manager who has a sound knowledge of the financial market manages the fund, thus bridging the gap of layman’s knowledge of the financial world and that of an expert.
Investors who have little to no knowledge of the financial market can take advantage of the expertise of the fund manager and earn higher returns on their investment. For an investor, an MF offers an opportunity to invest in a diversified portfolio of stocks, bonds and various other market securities.
What is Lumpsum Investment for Mutual Funds?
There are two ways in which investors can invest in mutual funds, viz. Lumpsum investment or Systematic Investment Plan (SIP).
Lumpsum investment refers to one-time investment than an individual makes in a mutual fund scheme. Investors with a large sum of disposable income in hand, coupled with a good risk appetite, go for lump sum investment.
What is Lumpsum Calculator?
Lumpsum calculator tells us the maturity amount of present-day investment, given the number of years for which the investment has been made. It takes into consideration an expected rate of return at which the investment will grow over the years.
With Paisabazaar’s Lumpsum Calculator, it is a child’s play to calculate the final amount you will receive at maturity after investing a corpus in a mutual fund. You just need to enter the one-time investment amount, number of years for which the amount remains invested and the expected rate of return. This will give you the final maturity amount.
Also, you can key in the final amount you want to generate, with your investment horizon and expected rate of return to know the value of present-day investment. This comes in handy when you’re making a financial plan for your retirement, children’s education, etc.
Also Know: Which is Better to Invest – SIP or Mutual Funds (Lumpsum)
Frequently Asked Questions (FAQs)
Q. What is the difference between Lump sum and SIP?
A. Lump sum and SIP are basically two modes of payment in any mutual fund scheme. In the former, you invest a certain amount of money at once for a particular tenure whereas in SIP you can invest the same amount by spreading it over the duration you are invested in through periodic payments/monthly installments.
Q. What are Benefits of investing in Lump sum Mutual Fund plans?
A. Usually SIPs are preferred for its added advantage of rupee cost averaging and power of compounding but sometimes Lump sum investment can draw an edge over SIP. It’s better to go for Lump sum in case of Debt Funds as for example Liquid Funds. Even in case of Equity Funds, you can make good returns and high profit if you buy at low prices and sell high. Thus, if you are risk tolerant then you can opt for lump sum investment when markets are viewing a slump, which is not suggested otherwise when markets are overpriced. Timing the market can be a concern for lump sum investor, hence it is preferred that one has some knowledge of the market.
Q. Which Mutual Fund is best for Lump sum?
A. Liquid Funds or Ultra Short Duration Funds are good for lump sum as these funds aim for short term financial goals. Small Cap Funds or Mid Cap Funds in case of Equity Funds are good for lumpsum investment as these funds invest in small/medium sized firms of which stocks are low priced and hence an investor has the chance of good returns and capital gains in the long term when stock prices hike up.
Q. Can we add Lump sum in SIP?
A. Yes, you can. Although these are two different modes of payment, yet the lump amount can be added to an existing SIP which makes it a third kind of payment mode. Also, the fund houses offer different types of SIPs for investors’ convenience such as Flexible SIP where you can change the amount of monthly installment or Top Up SIP where you can keep increasing the amount. Read More about SIPs and its Types