What is Lumpsum Investment in Mutual Funds

A lumpsum investment refers to a one-time investment in a particular scheme for a specific duration. Know more about the advantages, and factors that you should consider before opting for lump sum investment.
What is Lumpsum Investment
5 mins
16 January 2024

If you plan to grow your wealth systematically over time, investing is the way to go. When it comes to investing, there are two types of payment methods- lumpsum and Systematic Investment Plan (SIP). Let us understand what lumpsum investment is, how it works, and its advantages over other forms of investments.

Lump-Sum Investment In Mutual Funds

A lumpsum investment is a one-time payment made in full at the beginning of an investment period. It is a single, large payment made upfront, without any subsequent payments. It can be made for various purposes, including investments, insurance premiums, retirement plans, and more. Fixed deposits are also generally booked by making a lump sum investment.

What is a lump sum investment and a lumpsum payment?

Lumpsum investment refers to investing a substantial amount of money at one go into a financial product. The products can be mutual funds, stocks, bonds, or exchange-traded funds (ETFs). You can find them under the Investment tab on the Bajaj Finance platform. In this type of investment, the entire amount is invested in one go, instead of making regular payments over a period. On the other hand, lump sum payments refer to one-time payments made for various purposes, such as settling debts, buying property, or making investments.

How does Lumpsum Mode Work?

The value of a lump sum investment is contingent on the market performance of mutual funds, and there exists a standard formula for estimating its returns. The formula is expressed as:

A = P (1 + r ÷ n) ^ nt

Here, the variables represent the following:

  • A: Estimated return
  • P: Present value of the invested amount
  • r: Estimated rate of return
  • t: Total investment duration
  • n: Number of times interest is compounded within a year

What are the features of a lumpsum investment?

Here are the key features of lumpsum investments:

  1. Single Contribution: Unlike systematic investment plans (SIPs), which involve regular contributions, lumpsum investments entail a one-time, substantial investment into a mutual fund scheme.
  2. Immediate Deployment: The entire lumpsum amount is deployed in the mutual fund scheme immediately upon investment, providing immediate exposure to the underlying assets.
  3. Market Timing: Lumpsum investors must decide when to enter the market. The timing of the investment can have a significant impact on returns. Entering the market during a favorable period can result in higher returns, but it also exposes investors to market volatility.
  4. Lower Administrative Requirements: Lumpsum investments typically have lower administrative requirements compared to SIPs. There's no need for periodic contributions or setting up recurring transactions, simplifying the investment process.
  5. Higher Initial Risk: Due to the single, larger investment, lumpsum investors often face higher initial risk. The value of the investment can experience immediate fluctuations, which could lead to substantial gains or losses.

It's important to note that lumpsum investments can be advantageous when capital preservation or immediate investment is a priority. However, they can also be riskier due to the absence of cost-averaging, which is a characteristic of SIPs. The choice between lumpsum and SIP investments should align with an investor's financial goals, risk tolerance, and investment horizon.

How is a lumpsum investment different from SIP?

Investing in a lumpsum and through a Systematic Investment Plan (SIP) are two distinct approaches to investing in mutual funds. Here's how they differ:

Investment Amount:

  • Lumpsum: In a lumpsum investment, you invest a substantial amount of money in a mutual fund scheme in a single transaction.
  • SIP: With SIP, you make periodic, usually monthly, investments in a mutual fund with a fixed amount.

Market Timing:

  • Lumpsum: In a lumpsum investment, you enter the market at a specific point in time, risking potential market fluctuations.
  • SIP: SIP allows you to invest regularly and benefit from rupee cost averaging, buying more units when prices are low and fewer units when prices are high, reducing the impact of market volatility.

Risk Management:

  • Lumpsum: Lumpsum investments can be riskier due to their sensitivity to market conditions at the time of investment.
  • SIP: SIP spreads your investment over time, helping manage market risk and reducing the impact of market volatility.

Investment Discipline:

  • Lumpsum: Lumpsum investments do not necessarily enforce a disciplined approach to investing.
  • SIP: SIP promotes discipline, as you commit to regular investments regardless of market conditions, fostering a systematic and long-term approach.

Initial Investment Size:

  • Lumpsum: A lumpsum investment usually requires a larger initial amount, which may not be feasible for all investors.
  • SIP: SIP allows you to start investing with a smaller initial amount, making it accessible to a broader range of investors.

How is a lumpsum investment different from SIP?

Systematic Investment Plan is a mode of investment where you invest a fixed amount of money at regular intervals, usually monthly. SIPs help to average out the cost of investment and are a suitable option for those who want to invest regularly without the burden of a large up-front payment. Lump sum investment, in contrast, involves investing an amount in one go. It is a good option for those who have a substantial amount of money and want to invest in a single payment.

Which will give better returns – lumpsum or SIP?

The answer to this question depends on various factors, such as the investment period, market conditions, and the type of investment. While both lumpsum and SIP investments may offer good returns, the returns from lump sum investments tend to be higher over the long term. This is because it allows the investor to take advantage of the market's ups and downs, leading to a better return on investment (ROI). Using the SIP calculator and Lumpsum Calculator to assess the suitable investment approach aligned with your future objectives. With this knowledge, you can make an informed decision between SIP and lumpsum, selecting the more advantageous option.

Advantages of lumpsum investment over SIP

Some of the advantages of lumpsum investment over SIP include:

  1. Higher returns: A lumpsum investment offers higher returns over the long term. This is because the entire amount is invested upfront, and the investor can take advantage of the market's fluctuations.
  2. Lower costs: It helps save on transaction costs since there is only one transaction and also lower investment management fees, as compared to SIP investments.
  3. Flexibility: A lumpsum investment provides more flexibility in terms of the investment period, as the investor can choose the period according to their financial goals.

How do lumpsum calculators help investors?

The lump sum investment calculator proves beneficial for investors in predicting the returns on their investment. Understanding the functionality of a lump sum investment calculator is crucial for individuals aiming to optimise their investment gains.

  • It empowers the investor to evaluate potential returns from the investment.
  • User-friendly, the calculator can be effortlessly used by anyone.
  • Calculators offer instant, free results, saving time and effort for the investor.
  • A lump sum calculator aids investors in strategizing their investments based on estimated returns at the end of the investment tenure.

Where to Buy Mutual Fund Units in lump sum?

Investors looking to invest lump sum mount in mutual funds can but them online through the Bajaj Finserv platform.

A step-by-step guide to invest in mutual funds through the Bajaj Finserv platform

Step 1: Click on INVEST NOW on top of this page. You will be redirected to the mutual funds listing page.
Step 2: Filter by scheme type, risk appetite, returns, etc. or choose from the top performing funds list.
Step 3: All the mutual funds of the particular category will be listed, along with the minimum investment amount, annualised return, and rating.
Step 4: Get started by entering your mobile number and sign in using the OTP.
Step 5: Verify your details using your PAN, date of birth. If your KYC is not complete, then you will have to upload your address proof and record a video.
Step 6: Enter your bank account details.
Step 7: Upload your signature and provide some additional details to continue.
Step 8: Choose and select the mutual fund that you want to invest in.
Step 9: Choose whether you want to invest as SIP or lumpsum and enter the investment amount. Click on ‘Invest Now’.
Step 10: Select your payment mode i.e., net banking, UPI, NEFT/ RTGS.
Step 11: Once your payment is done, the investment will be complete.

Your investment will start reflecting in your portfolio within 2-3 working days.

Factors to consider before investing in lumpsum investment

Before investing a lumpsum amount, consider the following factors:

  1. Risk tolerance: Lumpsum investments come with a higher level of risk, and it is essential to consider your risk tolerance before investing.
  2. Investment goals: Determine your investment goals and choose an investment product that aligns with them.
  3. Market conditions: Study the market conditions and choose an investment product accordingly. It is also essential to keep track of the market and make necessary changes to your investment portfolio when required.
  4. Time horizon: Consider your investment period and choose an investment product that suits your time horizon.

Conclusion

Individuals can make mutual fund investments by regularly investing in a SIP. You can also make a lumpsum payment whenever they receive windfall income or a bonus. Closed-ended mutual fund schemes only accept a lumpsum investment. In this, the entire investment is made up front. Investors can choose the mutual fund scheme according to their financial goals and invest the entire amount in one go. Lumpsum mutual fund investments come with a higher level of risk, but they also offer the potential for higher returns over a period.

Armed with this information, investors can download the Bajaj Finance app to start their investment journey.

Calculate your expected investment returns with the help of our investment calculators

Investment Calculator
SIP Calculator FD calculator SDP calculator Gratuity Calculator Lumpsum Calculator Step Up SIP Calculator

Frequently asked questions

What is the return rate of lumpsum?

While the value of the return on a lump sum mutual fund investment relies on market performance, all lump sum calculators utilise a formula to determine the value of returns on lump sum investments. The compound interest formula is used to calculate your return.

The formula is:
A = P (1 + r/n) ^ nt

Wherein,
A = estimated return
P = Present value of invested amount
r = estimated return rate (%)
t = overall investment duration
n = number of times the interest is compounded
You can also use the Bajaj Lumpsum Calculator to calculate potential returns

Is lump sum investment good?

For investors with a long-term investment horizon of five to seven years, lump sum investing offers respectable returns. It frequently could assist in achieving particular monetary objectives, such as investing for a child's education fund or a retirement fund. It necessitates a one-time, substantial capital outflow.

Which is more beneficial lumpsum or SIP?

The state of the stock market affects the response to this query. While investing in mutual funds lump sum gives substantially higher returns during bull markets, investing in mutual funds via a SIP typically offers superior returns during bear markets.

What are the different types of mutual fund schemes?

The different types of mutual fund schemes are:

  • Equity Mutual Fund Scheme: Invests mostly in equity-related securities and instruments. Equity funds lets you invest in a diversified portfolio which is exposed to different sectors of the economy.
  • Debt Mutual Fund Scheme: Invests mostly in capital-appreciating fixed income assets such corporate and government bonds, corporate debt securities, money market instruments, etc.
  • Hybrid Mutual Fund Scheme: Invests in both equities and debt to strike a "balance" between income and growth. The regular income from the debt instruments gives the returns on such funds more stability.
How accurately does an investment calculator predict returns?

Investment calculators provide a close estimate of returns, considering various market factors, but actual results may vary due to market fluctuations.

How does someone start making lumpsum investment?

To start a lumpsum investment, one needs to select a suitable investment option, determine the investment amount, and make a one-time payment.

Who can invest in lumpsum mode?

Lumpsum investments are open to anyone with the financial capacity to make a substantial one-time investment.

How much NAV is considered good in lumpsum investment?

There isn't a fixed "good" NAV for lump sum investments; it depends on the fund's historical performance, investment goals, and market conditions.

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