Investing in mutual funds is one way of earning wealth. Though one can invest in a mutual fund through Systematic Investment Plan (SIP) or through lumpsum investment. But if we speak of only lumpsum investment in mutual funds, then there isn’t a single “best” mutual fund for a lump sum investment; several funds have given sustained excellent performance over the years.
Here are some top-performing mutual funds across different categories:
For Aggressive Investors:
For Aggressive Investors: Small Cap Fund
Small-cap funds invest in small companies with high growth potential. They are often undervalued and can provide massive returns over the long run. However, they also involve higher risks than large-cap stocks.
Why Invest in Small-Cap Funds?
High Growth Potential: Small companies often have the potential for high growth because they are in the development stages.
Potential for Higher Returns: Given the high growth potential of small-cap funds, the small-cap funds are bound to give higher returns as compared to other investment avenues.
Risks in Small-Cap Funds
Increased Volatility: As such, small-cap stocks experience higher volatility as their price moves up and down easily.
Liquidity Risk: The small-cap stocks lack liquidity and it becomes a time-consuming affair to buy or sell these shares in large quantities.
Higher Default Risk: Small companies are at a higher risk of default than larger, more established companies. Who Should Invest in Small-Cap Funds?
Investors with a High Risk Tolerance: Small-cap funds are appropriate for investors who are comfortable with high risk. Long-Term Investors: Small-cap funds are a long-term investment, and investors should be prepared to hold their investments for several years.
For Moderate Investors Flexi Cap Fund
Flexi-cap funds are a dynamic approach to equities, where the scheme manager has the liberty of investing in different market-capitalization and sectors. As such, they can capitalize on each market opportunity and, equally, mitigate risks. The significant features of flexi-cap funds are as follows:
Flexi-cap: The freedom to assign investments across large cap/mid cap/small cap besides sectors.
Diversification: Flexi-cap funds will reduce the risk of a portfolio as it provides investment in diversified stocks
Sustainable Returns: Flexi-cap funds could offer sustainable long-term returns as it enables an investment into the growth stocks.
Professional Handling: It is professionally handled by the fund managers, who make decisions wisely in terms of investments.
Assess the fund manager: A good fund manager may be very critical to the performance of a fund.
Check the historical performance of the Fund: Check how well the fund has performed during various market cycles.
Compare the Expense Ratio of the Fund: The lesser your expense ratio, the more your investments go into your returns.
For Conservative investors: Balanced Advantage Fund
Consider an investment that’s intelligent enough to change its investment, depending on market conditions. That’s a Balanced Advantage Fund. It invests both in stocks (equity) and bonds (debt) but alters the composition between the two depending upon whether the market is going up or down.
Why to go for them?
Risk Protection: They can help shield your investments in times of market downturn.
Good Chances of Returns: Stable returns are what they seek in such markets which are volatile.
Professional Management: They will manage the fund and decide how to invest on your behalf.
How do they work?
Bull Market: If the market is doing well, it can invest more in the stock to capture potential gains
Bear Market: If the market is down, it might switch to bonds to keep your money safe.
Lump sum investments in mutual funds
Lumpsum investing is one of the strategic ways of wealth growth but must be trodden with cautiousness and informed decisions. Here are the key points to take heed of:
Timing the Market
The Long-Term Perspective: Rather than trying to predict short-term market movements, focus on long-term investment horizons. Time in the market often outweighs timing the market.
Risk Tolerance and Investment Horizon
Align Investments to Goals: So, align your investment horizon with your financial goals. Long-term goals like retirement or your child’s education require a longer investment horizon since the downside of potential market fluctuations can be ridden out.
Diversification
Diversify Funds: A diversified portfolio will include the overall mix of equity funds, debt funds, and gold funds to balance risk and return.
Expense Ratio
Lower is better: Select funds that come with lower expense ratios, as these fees tend to eat away at your long-term returns. Higher is always worse. The expense ratio lowers the money invested in the underlying assets.
Professional Advice
Consult a Professional Advisor: A financial advisor may be able to assist you to better understand your financial goals, acceptable risk, and investment horizon. He can provide you with suggestions under your specific needs and make things a little easier to handle mutual fund investment.
Review and Rebalance Periodically
Rebalancing Periodically: Review asset allocation; rebalance the portfolio; maintain the desired risk profile.
SBI Mutual Fund: A Great Option for Lumpsum Investment
SBI Mutual Fund is a leading mutual fund house of India that offers a wide variety of schemes suitable for different investment goals and risk profiles. Lumpsum investing through SBI Mutual Funds can be a strategic decision especially for those with a huge amount to invest at one time.
Key Advantages of Choosing SBI Mutual Fund for Lumpsum Investment:
Clear Proven Track Record: SBI Mutual Fund has shown a proven ability to deliver consistent performance across market cycles.
Diversified Range of Funds: This fund house offers you a diversified range of funds – equity, debt, hybrid, and international funds – enabling you to define your specific investment strategy.
Experienced Fund Management: There is a pool of highly experienced fund managers at SBI Mutual Fund who understand the markets and have fair investment strategies.
Strong Infrastructure: SBI Mutual Fund has solid structures for risk management and strong infrastructure to ensure safety and security for investments.
Strong Distribution Network: SBI Mutual Funds are available through an extensive number of banks, brokers, and online portals, making investment through them easily accessible.
Best-selling SBI Mutual Fund schemes for one-time investment: SBI Bluechip Fund, SBI Small Cap Fund, SBI Balanced Advantage Fund, SBI Magnum MultiCap Fund.
FAQ’s on lumpsum investment in mutual funds
What is a lumpsum investment in mutual funds?
Lumpsum Investing in mutual funds is essentially investing a significant amount of money in one single transaction instead of dividing and pouring it in over a period of time. Unlike a SIP, where you are regularly adding a fixed amount of money.
Which mutual fund type is better for lump-sum investment?
The “best” mutual fund for a lumpsum investment would depend on your particular financial goals, risk appetite, and investment horizon. However, some types of mutual funds are, in general, considered suitable for lumpsum investments:
1. Equity Funds: Large-Cap Funds, Mid-Cap Funds, Small-Cap Funds, Multi-Cap Funds, Sectoral Funds, Thematic Funds.
2. Debt Funds: Liquid Funds, Short-Term Debt Funds, Medium-Term Debt Funds, Long-Term Debt Funds, Gilt Funds.
3. Hybrid Funds: Balanced Advantage Funds, Multi-Asset Funds.
What are the risks involved in Lumpsum Investment?
While lumpsum investments can potentially yield high returns, it also involves certain risk factors:
Market Timing Risk: High Value of Large amounts invested at once is very much risky if the market is at the top.
Market Volatility Risk: Equity markets are volatile in themselves and fluctuate in great values over time.
Concentration Risk: The more you invest in a specific fund or asset class, the more possibilities of concentration of your risk it has.
Which mutual fund is best for lumpsum investment?
The top performers in the area of lump-sum investment in mutual funds are the following:
Quant Small Cap Fund, Axis Small Cap Fund, Nippon India Small Cap Fund, HDFC Flexi Cap Fund, Parag Parikh Flexi Cap Fund, Quant Flexi Cap Fund, HDFC Balanced Advantage Fund, ICICI Prudential Balanced Advantage Fund