Many readers ask, “Where should I invest a lump sum before deploying it into equity MFs?”. They research the best product for holding this lump sum, how long they should wait to start investing in equity MFs, and how long they should do the transfer.
This is a waste of time, effort and money. You invest in equity only for the long term. Over the long term, details such as when you started investing the lump sum, what instalments you invested in, and for how long will get washed away in the volatility of the markets. Always keep in mind the hypothesis that the markets will fall only after you invest and will rise only after you redeem. So don’t wait on the sidelines!
Also, there is no “averaging benefit” of investing a lump sum slowly. Any such benefit will get dissolved in market noise. Once the entire lump sum is deployed, it will be subject to 100% market risk, which is inevitable!
So, it does not matter where you invest the lump sum before you deploy the money into equity! If you want to keep it in your SB account. Open an FD, fine; invest it in an arbitrage mutual fund or debt fund. Just get on with it, and don’t waste time in the deployment with a 24-month or 36-month plan! Just some amount each week and get it over within a few months – 3,6,9, or, at max, 12 months. And you don’t need a SWP either! Just invest manually! Before that, some planning is necessary.
How to plan a lump sum investment into equity mutual funds
1: Have you done a goal planning exercise to determine the right equity and fixed income mix for your goals? If you have not, then don’t invest anywhere until you do. You can DIY this with the freefincal robo advisor. If you want professional help, work with a SEBI-registered flat fee-only financial planner from our curated list.
2: Will this amount be associated with single or multiple goals? What is the current asset allocation for each goal if it is the latter? What will the new asset allocation be if I invest the total amount in equity? Is the new asset allocation desirable for each need?
If the lump sum investment into equity skews the asset allocation the wrong way (too much equity for the goal), it would be better to suitably split the investment between equity and fixed income per each goal’s needs.
Assuming it is okay to invest the lump sum into equity, it is best to define it.
3: What is the value of this lump sum divided by your current equity investments? For example, if this lump sum is just 10% of your equity investments, it is pretty tiny, and the investment can be spread over a few weeks. Large sums can be spread over a few months. We recommend not exceeding one year.
4: What is the value of this lump sum divided by your monthly investment in equity? For example, if this lump sum is 2.5 times, it can be spread over 2-3 months. The same recommendations as above apply.
First, there is no need to invest the lump sum in a liquid fund or any other kind of debt or arbitrage fund and start an STP. As long the goal is several years away, the sooner you deploy the money into equity, the better, and this can be done directly from your bank account to the fund over a few months. See: Investing a lump sum in one-shot vs gradually (STP) in an equity mutual fund (backtest results).
Just choose a duration that makes you comfortable, but please do not claim it is a superior choice or will produce a better outcome. No one knows that!
People associated with mutual funds will tell you to park the money in a liquid fund and then start an STP in an equity fund. They do this to ensure the lump sum stays with them from day one. There is no benefit for the investor in doing this.
In summary, once the investor decides a particular lump sum investment in equity is suitable for their future needs, they can spread the investment over a few weeks to a few months as per their comfort and directly invest from their bank accounts to the equity fund. All that matters is that we invest it without hesitation. Over the long term, market volatility will ensure the investment method is irrelevant.
Do share this article with your friends using the buttons below.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 7000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 2,500 investors and advisors use this!
Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
Podcast: Let’s Get RICH With PATTU! Every single Indian CAN grow their wealth!
You can watch podcast episodes on the OfSpin Media Friends YouTube Channel.
🔥Now Watch Let’s Get Rich With Pattu தமிழில் (in Tamil)! 🔥
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit ‘reply’ to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join 32,000+ readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! (Link takes you to our email sign-up form)
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Most investor problems can be traced to a lack of informed decision-making. We made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So, in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it, as well as teaching him several key ideas of decision-making and money management, is the narrative. What readers say!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. – Arun.
Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.
Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)