Lump-sum Investment

What are Lump-sum investments in Mutual Funds?

As opposed to saving in regular instalments of any size, under lump-sum investments in mutual funds, one invests bigger chunks of money either once or at intervals, the exact time of which can never be predicted. The intent here is to invest money as and when it comes as opposed to doing so at regular intervals.

Advantages and disadvantages of lump-sum investments in Mutual Funds?

Advantage of investing in lump-sum:

Saving of time and patience which normally one has to put in, in the case of SIPs
Better returns where market remains favourable: If the market is crashing and it’s time to buy, the best thing is investing in lump-sum which guarantees high capital gains & also returns
Favourable terms from Fund Manager: Where the purchase of MFs are in bulk, it can be reasonably expected of the Fund Manager to give better rates of charges and costs.

Disadvantage of investing in lumps-Sum:

When the investor puts in money in big chunk, there are certain disadvantages that creep in like:
No advantage of market movements: Markets typically have cyclical movements both high and low ie., bulls and bears. An investor buying during the bull phase may have to pay higher and get lesser units. But if the same money was invested in regular chunks, the advantage of both highs and lows can be had!
Investment into one type of asset which could otherwise be split to reduce risks and improve earnings.

Myths about lump-sum investments in Mutual Funds

Certain myths abound about investing lump-sum amounts in mutual funds like:

It’s only for the big investors
Quite flatly, it’s for those who can afford to invest in lump-sum. Period. The mode has its own advantages and disadvantages but is not meant only for a certain profile of investors.
It ought to be done only during the bear phase
If you can time it in that order, good for you. As an investor, you get your money’s worth fast and big! But not everyone has the time and patience to wait for the downturn of the markets.