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How to Invest Lumpsum in Mutual Fund Schemes?

How to Invest Lumpsum in Mutual Fund Schemes?

If you have received your bonus or annual performance pay or any lump sum money, you might be looking for several investment options. However, one would think it is difficult to invest lump sum investments in mutualfunds. In this article, I would elaborate various ways where you can invest your lump sum money in mutual-funds. How to invest lump sum in Mutual Funds? Before you decide the options available, you should decide the period for which you want to invest such lump sum in mutual-funds. Is it for short period, medium term or long run. 1) Invest in Long debt Mfs: Till recent Budget, debt MFs were famous as they provided good tax benefit after 1 year which is increased now to 3 years time frame. 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. Investing in some of the top long term debt MFs 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 MFs: In case you want to park your money for 6 to 12 month period, you can opt for short term debt MFs. These MF schemes invests in short term fixed income opportunities and debt instruments. 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 ideal investment period is 1 to 6 month period. Some of the good funds under this category are ICICI Pru Money Market Fund, SBI Magnum insta cash fund etc. 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 invested in short term debt funds and do STP (Systematic Transfer Plan) 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 for equity, 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 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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