• HDFC
• 31 Jul 2018
• MF Product

HDFC, Tester

A Lump Sum

Consider this: you have taken the time to understand the basics of investment and learnt how to make a sound investment. You’ve set-up a SIP and are beginning to see some reasonable gains through it. You are now on your way to a healthier financial life.

 

People acquire a large sum of money, whether through the sale of a property or maturity of an investment, and wonder how one can go about investing this newly acquired sum of money.

 

Well, the most common answer is to invest in a mutual fund. It is one of the safest ways to invest your money. Since you’ve already set up an investment through SIP, this might be a good opportunity to consider making a lump sum investment in a mutual fund.

 

The Solution

Having spent time learning the basics, you have already covered fixed income plans in your investment portfolio. So, there is no point insending these funds towards that direction. And investing the entire sum of money in equity markets is a risky tactic. Hence, mutual funds provide a sensible solution in this scenario.

 

Risk and Return

One method that investors find very favourable is to invest the lump sum in a debt mutual fund, and then use a SIP to transfer the funds into equity markets, over a period of time. And among the debt funds, liquid funds are the safest bet as they carry the lowest interest rate risk. These liquid funds earn interest at a rate of 6 to 8.5%. Now, while this lump sum generates a certain rate of interest, you can move a certain amount of the sum into an equity mutual fund of your choice, every month. This way you can enjoy the benefits of the equity funds without risking your lump sum.

 

Things to Consider

Patience is very important here. In fact, patience is always an important factor when considering investments. If you jump into a plan too quickly without taking all factors into account, you could end up exposing your investment to big risks. While liquid funds are a safe choice, this does not mean that they are entirely free of risk. It is simply that they are the least risky option here. Choose liquid funds that invest in highly rated securities.

 

In order to transfer portions of your lump sum from debt mutual fund into equity mutual fund through SIP, you can set up a Systematic Transfer Plan (STP). This works for transfers within the same fund house. However, if you are considering the transfer from one fund house to another, then you need to set-up a systematic withdrawal plan with one fund house (from the amount is taken), and a systematic investment plan with the other fund house (where the amount is being invested).