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Should One Invest Lumpsum Money in Mutual Funds Now & How to Go About it?

Highlights

  • Mutual Fund NAVs have fallen 30%-35% over the last couple of months
  • So, is the time right to invest lumpsum in mutual funds? Read the advisory here and decide!

Stock markets have corrected around 30% from the top, same is the story with mutual funds that have seen an NAV erosion of around 30-35% in the last couple of months. There are many questions in the mind of investors in this period of uncertainty and anxiety. For people who have cash in hand and a time horizon of 3-5 years, this is a good time to start investing lumpsum. But how to go about it. We suggest two ways:

1)Start an STP – Like SIPs, STPs are a staggered way of investing in mutual funds but little less known and understood. In an STP, one can invest his lumpsum money in a liquid fund and then transfer the same into an equity fund/s of their choice of a pre-set amount and a date. Let’s understand with an example. If you have Rs 1,00,000 to invest lumpsum, do that in a liquid fund. Then choose an amount, say Rs 20,000 per month to be transferred in an equity fund on the 10th of every month. This means five installments of Rs 20,000 each, it will help in averaging the buying price or rupee cost averaging. This strategy is particularly useful in these times since it’s hard to predict the exact bottom of stock markets and mutual fund NAVs.

2)Invest in a staggered way from savings a/c – The other way is to keep the money in your savings bank a/c and invest 3-4% daily over the next month or so. This will also help in availing the benefit of rupee cost averaging and making your entry levels average out over this time period.

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Both are optimum strategies to be used at this point of time, we won’t recommend to invest everything in one go at this juncture since there is still a lot of uncertainty over the COVID-19 situation and we will have to see how it evolves. Markets could slide further if there is a sharp spike in cases or the economic impact is worse than conceived. But we have had a significant correction already so it’s a good level to start nibbling albeit in a phased manner.

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