Have A Lump Sum To Invest? Here iIS What You Should Do
Invest a percentage equal to your age in safer, stable funds, such as dividend or pension schemes
Diwali bonuses are around the corner and with that comes the age-old problem of spending it all in the blink of an eye. Investing this amount is an effective way of ensuring you park that money aside. Here’s how you can effectively make use of mutual funds to grow your returns on the lump sum amounts.
How Much Should You Invest?
Says VLA Ambala, Co-Founder, Stock Market Today, “Consider dividing it based on your age and risk tolerance. A general rule is to invest a percentage equal to your age in safer, stable funds, such as dividend or pension schemes. And the rest in equity.
“For example, if you have Rs one lakh and you are 25 years old, you may allocate Rs 25,000 in safer instruments and Rs. 75,000 in high-growth funds; enabling you to take a risk mitigated route to capture growth. Says Gaurav Goel, Entrepreneur - Investment Advisor, “An investor should select four mutual funds from different asset management companies and different investing strategies to create a diversified portfolio”
Systematic Transfer Plan
A Systematic Transfer Plan (STP) is another route you can take if you foresee the need for funds in the near future. Here you can invest the entire amount in liquid funds and transfer small sums back to your bank over time as required. If you don’t see the need for the entire amount but could need a portion of it, consider diversifying the investments such that some portion of it is parked in liquid or short term funds while the rest is invested in longer term funds.
Systematic Investment Plan (SIP)
However, in volatile market conditions an SIP may be a better option so that you can capitalise on buying the dip and returns from market peaks. Says Ambala, “Mutual fund schemes are a long-run game, so you should at least keep the horizon of three to five years.”
Says Goel, “Refrain from deploying the entire pool of cash in one shot as a one-way upward slope of movement on equity markets is hard to estimate.”
Selecting a mutual fund with a strong track record is essential. Consider your risk appetite and financial goals when making these financial decisions.
