Equity funds are an important asset class for creating and balancing your investment portfolio. These funds provide exposure to the stock market, allowing investors to benefit from potential growth and capital gains. Depending on your risk appetite and the amount you can afford to invest, you can choose from various equity funds—from large-cap funds to sector/thematic or small and mid-cap funds.
You can even add to your portfolio by investing in a lump sum in equities —a simple yet effective way of instantly taking advantage of market movements with one single investment. Here are 3 ways to invest lumpsum in equity funds, along with the benefits and risks you need to consider.
1. Offline method
For the offline process, you need to fill up a physical form with the broker or the fund house. They will give you detailed information about available schemes, including their features and the documents required to invest in mutual funds.
Through the online portal of fund houses
- Visit the official site of your selected fund house
- Click on ‘Mutual funds’
- Login with your credentials
- Select from different mutual fund investment plans based on your objectives and risk appetite
- Click on ‘Invest now’
2. Through a mutual fund investment app
- Install the app
- Select ‘Mutual funds’
- Go through the equity funds list
- Click on ‘Invest’ and select ‘One-time lump sum’
- Enter your investment amount and tap on ‘proceed’
- Now provide the bank details for the transaction and enter the OTP for payment confirmation
Benefits of lump sum investment in equity funds
3. Higher return potential
Lump sum investments have the potential to yield higher returns since they can take advantage of market volatility, thus allowing investors to buy shares at lower prices and enter the market into favourable conditions.
- Power of compounding
Investing a lump sum upfront maximises the effect of compounding. Your investment grows faster than if you make smaller investments over time. This is because compounding has the potential to turn even the smallest sum into exponentially larger returns over time, so investing a larger sum upfront can give you access to much bigger gains.
- You can time the market and plan your investments
With lump sum investing, you have more flexibility to adjust your strategies depending on how the markets are performing at that particular moment. You can carefully time your entry and exit into the markets by evaluating current market conditions, industry trends and other investment dynamics.
Risks of investing lumpsum in equity funds
- Timing the markets can be risky
If you do not time the market correctly and the market crashes unexpectedly or your investments don’t perform as expected, you could end up losing most or all of your initial mutual fund investment. Similarly, if you invest too much at once without research or considering your individual risk tolerance, you could end up overexposing yourself to riskier investments, which could result in even greater losses.
Equity funds are volatile in nature and can fluctuate significantly in the short-term. So, if you need access to your money quickly, you may not be able to withdraw it without incurring losses due to fluctuating market prices. Additionally, some types of equity funds may require longer lock-in periods than others, which could further limit your ability to access your money quickly if needed.
Lump sum investing has its benefits and risks, but if done correctly, can be a great way to invest in equity funds. Consider looking for well-experienced fund managers and choose funds with strong performance spanning over 5-7 years. It is also crucial to diversify your investments across different asset classes to create a balanced portfolio that helps reduce risk and ensure returns.