How to invest lump sum in Mutual Funds in India?

How to invest lump sum in Mutual Funds in IndiaHow to invest lump sum in Mutual Funds in India?

If you have received your bonus or annual performance pay or any lump sum money, you might be looking for investment options to grow your money. While there are several other investment ideas available, one would think it is difficult to invest lump sum investments in mutual funds. In this article, I would elaborate various ways where you can invest your lump sum money in mutual funds in India.

How to invest lump sum in Mutual Funds in India?

Before you decide the options available, you should decide the tenure for which you want to invest such lump sum in mutual funds. Is it for short tenure, medium term or long term period.

Also Read: What are the Top 5 Best Mid-cap/Small Cap Mutual funds to invest in India?

1) Invest in Long debt mutual funds

Till recent Budget, debt mutual funds were famous as they provided good tax benefit after 1 year. Currently it is increased to 3+ years time frame to treat them as long term capital gain purpose. Even now, these are one of the best investment options to invest for 3 year time frame. If you can hold this for 36 month period, you can get long term capital gain indexation benefit in mutual funds. Investing in some of the top long term debt mutual funds like, Franklin India Corporate bond opps fund, ICICI Pru long term debt income fund, Birla SL Dynamic Bond Fund etc. would provide you good returns.

2) Invest in Short term debt funds

In case you want to park your money for 6 to 12 month period, you can opt for short term debt mutual funds. These mutual fund schemes invests in short term fixed income opportunities and debt instruments. In such cases, Mutual fund houses could sell them immediately without any risk. Some of the top ultra short term mutual funds are ICICI Pru Flexi income, SBI Magnum Income fund etc. are good options.

3) Invest in liquid funds for very short term

If you have some money which you are planning to invest or spend in a few months, but may not need them now, you can park such money in liquid funds. Liquid funds are those which invests in short term investment options which can be easily liquidated. The good part is you can sell them immediately and money would be credited to your account on the same day. The ideal investment period is 1 to 6 month period. Some of the best funds under this category are ICICI Pru Money Market Fund, SBI Magnum insta cash fund etc.

Also Read: How should you invest in Mutual Funds through Systematic Investment Plan and to be successful?

4) Use STP method to invest in equity funds for long term

One of the biggest mistake investor would do is invest a lump sum in equity funds. This may be a good strategy during market corrections or when markets are in a down trend. However, if you observe now where markets are reaching a peak and when you do not know its direction, the best way to invest a lump sum in mutual funds is investing in short term debt funds and do Systematic Transfer Plan (STP) to equity funds over a period of time. This is nothing but you are investing one time in debt funds and doing STP every month to equity fund, thereby reducing risk of investing a lump sum in mutual fund. You can do STP to equity funds considering 9 to 12 month period. Some of the top equity funds are ICICI Pru Dynamic fund, Birla SL Frontline fund, Quantum Long Term equity fund, ICICI Focussed blue chip fund etc.

Concluding remarks: Mutual funds have been providing good returns in the long run. Investing lump sum in above methods would help you to overcome market risks and provide you higher returns compared to bank FD’s.

Please note that investments in mutual funds carry market risks, you should review mutual fund schemes carefully before investing.

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How to invest lump sum in Mutual Funds in India


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