How 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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Suresh
How to invest lump sum in Mutual Funds in India
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Sir
I have a lump sum of 75 lacs and want to invest in Mutual funds through STP from a liquid fund.Are there any tax liabilities in doing STP from a liquid fund to an equity fund?Waiting for your advise.
Regards
Rajesh Bhat
Hi this is Sandeep,I have no idea abt mutual fund .i wanted to invest 40000rs for 3 yrs.can you suggest me which mutual fund shall I go for a good returns.
I am a retired person recently I have received Rs 10 lakhs as lic maturity amount.l want to invest this amount in my for at least five years.Kindly suggest in which my I should invest this amount.Will it be better to invest through systematic fund transfer plan or otherwise. Thanks
Dear Suresh
Read thru your article.. I need your advise on STP investment investing and I hope you will be kind enough to suggest.
-I'm 35 and have managed to create a saving of Rs.39 lacs thru my 15 years of career work savings in total which is not invested anywhere.
-I have invested Rs.4.5 lacs (45000 each in the below 10 MFs)
Birla SL Frontline Equity – Growth, Birla SL Top 100 – Dividend, DSPBR Focus 25 – Dividend, DSPBR Focus 25 – Growth, DSPBR Micro Cap Reg – Growth, Franklin India Smaller Companies – Growth, HDFC Balanced – Growth, HDFC Mid – Cap Opportunities – Growth, ICICI Pru Value Discovery Reg – G and Kotak Select Focus Reg – Growth
-I have also invested Rs.6 lacs in FD (in Shriram transprt) due for maturity in march 2018.
-My goal is to attain yearly returns of 4-5Lakhs P.A to meet my expenses, with low risk so that it will be my back up esp when i’m not employed after 2 yrs (planning to be self employed)
– Considering this,can you kindly suggest:
1. Since I have 39 L available, is it a good idea to invest say 7 lacs each in 5-6 liquid funds and then do a monthly STP to equity funds?
2. If its a good idea am thinking of going for the below equity funds
Birla Frontline Equity fund direct (large cap)
HDFC Mid-Cap Opportunities Fund Direct Growth (mid cap)
Franklin Prima plus fund/or Franklin India Smaller co fund (small cap)
DSP Focussed 25 Fund Direct Growth
IDFC Classic Equity Fund Direct Growth
ICICI Value discovery (Diversified)
and Axis Long term quity (ELSS)
Can you pls suggest your mix of 5-6 equity funds?
3. Also I understand that gains out of Liquid funds are taxable as I would do STP. I came across an interesting Liquid fund – HDFC Cash management Fund Treasury Advantage Plan – daily Dividend Reinvestment. While this fund’s returns are almost like a liquid fund, its dividend doesn’t attract a 28.3% DDT. DDT in this fund is just 15% .. So can this be a good liquid scheme to consider to put my funds?
Can you also suggest some other similar liquid funds where there is lesser DDT?
4. Or instead of investing the lump sum in liquid funds, can I invest in some regular debt funds and define STPs from there to equity funds? Is that permissable?
If so can you suggest some good debt funds?
Thank you
Vivek
What is profit booking in liquid??
It is not profit booking. These are returns which you get when you redeem Mf units.
Want to go with a STP in debt fund and transfer it to equity funds as well.Please advice in which fund to fix my amount also the tenure of it. Would be highly obliged.
Dear Mr. Suresh
I recently resigned from my job and would like to earn through investments. Can you please suggest me a few risk-free funds through which I can generate a monthly / quartely income.
Look forward to your suggestion.
Thanks and regards
Vani
Mr. Suresh,
MFs are long term investments, longer the better, we know that. But the threat of markets crashing say about 10% to 20% on the sensex/nifty is always there, so to preserve profits, what should the investors do? when to exit the fund? if NAV comes down significantly by say 5% to 20%, we need fresh money to invest, so how to get that money at that point of time? can we exit any fund if it gives say some good above normal returns? what is your idea sir?
kindly reply. do we encash fully or partially? kindly clarify, thanks
Anand, Booking of profits can be done on stocks. However for mutual funds, since you invest thru SIP’s you need not worry. However a big crash of 10% to 20% provides opportunity to invest more.
Hi Sir, I am Arun Prakash. I have been following your posts. Thanks for the great articles ! I would like to start with SIPs and would like to know the steps to be followed to start investing in SIPs. If my question is too diverse, kindly take a couple of examples and explain the same. Thanks in advance. Regards, Arun
Arun, refer out top 10 mutual funds article. First open MF account with any MF broker like ICICIdirect or fundsindia and then start investing them every month
Sir in a month i will be getting approx 60 lac from my ancestrol property what my goal is to take rs 35000 monthly for that i have decide is to put money in liquid fund of hdfc. Icici. Sbi and birla from there stp to following large mid and small caps in market corrections these are as follows
Hdfc midcap opportunity
Icici focussed blue chip
Icici value discovery
Icici export and other services
Sbi small and midcap fund
Sbi magnum global or midcap fund
Birla mnc
Rest of the amount will remain in liquid say 5 lacs for monthly expenditure. After year or so profit booking in liquid so that cycle takes place for monthly income.
Is this good idea please say it here or in my email id
Me*********@gm***.com
Mob 08192013333
Thanks in anticipation
Hi Suresh,
Thanks for the article. Could you please clarify below doubts:
1. If I invest lump sum amount in Liquid fund/short term debt fund and withdraw the same in 3-6 months, what would be the tax on short term capital gain and how do i need to pay the same? Or it will be deducted during redemption?
2. If I invest in Long Term Debt fund for more than 3 years, what would be the tax on Long Term Capital Gain?
Also, what would be the taxable amount if I withdraw it before 3 years?
Thanks.
i want to know which is better option lump sum investment in FD is better or investment in short term debt fund and doing STP
i want to invest it for 10 year
Hi Suresh I am a regular follower of your website and try to follow the advices which you give. I would request you to come up with a discussion regarding
UTI Retirement Benefit Pension Fund ,
Close Ended Mutual fund and
Systemetic Investments in Stocks
Please consider the above topics if you have time in your hand.
Thanks,
Suman Deb
Sure Suman. Can you pls post this on suggest a topic as I would generally pick up from there.
Hi Suresh ji,
Nice article. I have a query here…if I do STP for 12months and transfer to equity funds , will I get any return on the amount placed under STP till the whole amount is transferred to equity fund in 12 months? Also can I STP to an existing equity SIP plan of mine .. Which means simultaneously my SIP and STP amounts will be credited to equity fund . Please clarify
Thanks
Prashanth
Yes Prashanth, You would get debt fund returns.
Sir I want to open three Sip of 3000 each for minimum 2 years With maximum equity for best return. I have already 02 SIP in HDFC TOP 200 and Reliance regular saving fund equity. pl suggest for 03 SIP plan
You can check this article nad invest in large cap funds. https://myinvestmentideas.com/2014/12/top-10-best-sip-mutual-funds-to-invest-in-2015/
Suresh Sir, I have received Rs. 60,000 (Sixty Thousand) from an old borrowing and I want to invest it for 3 years (maximum). Please suggest where to invest (no or medium risk) preferably mention the scheme name. Thanks in advance and wish you “MARRY CHRISTMAS”.
I wish to invest Rs. 13000/- pm. through SIP in best Mutual Funds. Request to suggest the schemes I must opt for/
With regards
Anand
You can check this article. https://myinvestmentideas.com/2014/12/top-5-best-elss-tax-saving-mutual-funds-to-invest-in-2015/
Hi ,
Good Day !
This good article and came exactly in perfect time for me. I want to invest 200000 INR (2 Lakh) in Debt MF for the period of 5 year through STP In Equity (Large Capital, Balance fund )
Could you suggest me some good Debt fund(For STP ) & Equity fund?
Thanks. I will get an amount of around 10 to 15 Lakhs in a couple of months from my ancesteroal property. As suggested by you, I would like to put this in a liquid / debt fund and STP in 2 equity / balance funds. The question I have is the number of STPs i should opt. Can I invest the entire amount through STP into equity / balance funds in 12 months or can I opt for 2 or 3 years.
I already have SIPs for about Rs 30K p.m. in the funds recommended by you.
Regards,
JAN
I felt opting for 12 months is good option. If possible, you can increase this from 1-2 years.
NICE ONE OF ALL ARTICLES, ALSO NEW TO ME…
THANKS,
Thank you Suresh Sir,
For another Great idea. STP
Thank you.
How much interest can be earned by investment in Franklin india coorporate bond opps fund and then doing STG,
May be approx 6% to 8% per annum
You mean that 6% to 8% per annum is an average interest for all debt fund and Is this Interest is after Doing STP in equity fund or before? If this is before STP then how much after STP in equity fund
Difficult to say as it depends on tenure. Generally they offer 8% to 9% interest, if you sell them in 1 month, you may get 0.5% to 1% etc.
Good mrng sir, i want to invest in MF but i dont know , how i invest in because
i have no Demate acc.
approach icicidirect or fundsindia to open mutual fund account. Once you open, start studying articles on mutual funds to understand on how mutual fund works. Then you can start investing
Hello Sir,
Thanks for this information about lump sum investment.I have 200000 Rs, so shall i do STP in Debt fund and to equity fund every month 15000 RS for 12 month and then stay invested for 8-10 year. Or STP in debt fund and then do equity fund transfer for long period i.e 2000 rs every month for 10 year. I can take moderate to high risk .
Please advise.
Thanks & regards
Ashish
1) invest in debt fund 2) Do STP from debt fund to equity fund for 12 months.
Excellent and Simple to understand…Great Job Suresh.
Regards
Sandeep
Mutual funds are subjected to market conditions after 5 or 10 years investment. So will i get the expected returns
What are the other options for good investment for 5 years or 10 without the volatility of market
how abt your thoughts on pension plan..me been 30 age can i start.
Hi Suresh,
Thanks for in detail explanation.
Would “UTI dynamic bond fund” will be good for long term debt mutual fund?
Good one
Thanks for the article.
Hi,
You recommend parking lump sum in liquid fund and then STP to equity over 6months to an year. Is that a good option considering the concept that the systematic investment should go into equity fund via many years of SIP installments instead of just 6 months or 1 year SIPs ? Market may remain high for 6 or 12 months during those STPs and then if market suddenly collapses then it contradicts with the concept of SIP/STP’s cost averaging.
I have a big lump sum amount to invest, but really confused. Please help me clarify.
Rahul, Instead of investing lump sum in equity funds, you are diversifying it for 12 months period. Yes, I agree that this may not be as effective as you do SIP for 8 to 10 years.