Do you have lump sum amount and you wish to invest in Equity Mutual Funds? My suggestion is not to do lump sum investment in a mutual fund (Especially Equity) at a time and better to go for mutual fund SIP investment. (Systematic Investment Plan).
You may ask Why, the reason is stock market always fluctuates.If you invest lump sum amount at once in Equity Mutual Fund when the market is at its peak then it is likely that you may not get any returns.Also, if the market does not perform well in future then you may need to book a loss. Someone may ask, what if I invest lump-sum amount when the market is at it’s low? Yes, That is great but it is really hard to know the bottom level of the stock market.So investing a lump sum in equity mutual fund is risky. It’s better to choose the SIP (Monthly Systematic Investment Plan) because it averages out the fluctuation in the market hence it is the safe option.
If you invest lump sum amount at a time in Equity Mutual Fund then you may get high profit , high loss or average returns but if you choose SIP for longer term you will definitely get the returns which may be average but sure.
Now you might have a question in your mind that how to invest lump-sum amount through SIP. As SIP is the investment of small amount monthly then it will require years to consume the money which you have right now.You also don’t want to use this money for other purposes. So the option is to park your money safely. Now you might be thinking that Can I go for FD or RD ? The answer is no because once invested in RD and FD ,it would be difficult you to get the money on the regular monthly basis which you need to pay for SIP.
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So the option is STP (Systematic Transfer Plan - Mutual Fund). Many of the Brokers like ICICIDirect are having this facility.Let's know how it works.
How Systematic Transfer Plan (STP) Works?
In STP or Systematic Transfer Plan, You can invest the lump sum amount in one fund or scheme and can transfer small amount on monthly basis like SIP to another fund of same AMC or Fund House till lump sum amount is consumed. So you can invest the lump sum amount in Debt Mutual Fund (Not Equity) which is safe and can transfer small amounts on monthly basis into Equity Mutual Fund. In other words,Your Lumpsum amount (Debt Mutual Fund) will be invested over a period of time like SIP in Equity Mutual Fund till it is completely consumed.
Let’s take an example to understand it better.
Suppose you have 5,00,000 INR in your account and want to invest 5,000 per month in Equity Mutual Fund. In this case, you can invest 5,00,000 INR in Debt Mutual fund and start STP of 5,000 INR Monthly to Equity Mutual fund. Now assume you want to invest in SBI MAGNUM MIDCAP FUND - REGULAR PLAN - GROWTH fund which is Equity mutual fund, so you need to select the Debt Mutual fund scheme from SBI only to park 5,00,000 INR. So let’s assume that you have chosen SBI MAGNUM GILT FUND - SHORT TERM - REGULAR PLAN - GROWTH. Below is the screen shot from ICICIDirect about how to place STP request.
So, your 5,00,000 INR (Which is safely invested in DEBT Mutual Fund) will be invested in SBI MAGNUM MIDCAP fund (Equity MF) over a period like SIP 5000 INR per month. It will continue till the period option you selected while placing STP order.(See Screenshot)
Charges Involved -
Charges like Brokerage and taxes will be applied for investing lump sum amount and for STP which you need to read carefully. These charges may vary as per broker and Fund House you selected. Also, You will get some return from Debt Mutual Funds also for a period till it is consumed into Equity.
Over to you....
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