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There might be occasional instances in our life when we receive a windfall of money? Do you plan to invest this money and safeguard your future? Well, that’s a wonderful idea. Saving money now can help you live a comfortable life tomorrow. Now that you have decided to invest your money, there are several decisions to make. Where should you invest your money. How should you invest your money – should you make a lumpsum investment or stagger your investments through Systematic Investment Plans (SIP). This article aims to act as an investment guide and things to consider before you invest in lumpsum.
Timing the markets
Lumpsum investments require you to carefully analyse the time when you enter the markets. However, not everyone can master this art. You can consider using market dividend yield ratio or P/E (price per earnings) ratio to understand market valuations. For instance, it is recommended to invest a lumpsum amount in equity funds when the price per earning ratio of the Nifty is around 12-14 than investing in equity funds when the P/E ratio is around 22-24. This is because lower P/E ratio denotes higher safety. Thus, market valuations play a significant role when investing a lumpsum in mutual funds.
Diversify your investments
You must have time and again heard the old age saying, ‘Do not put all your eggs in one basket’. This statement is true for mutual fund investments as well. Experts recommend investors to diversify their investment portfolio across asset classes, location, and different types of investments. You can consider investment options such as mutual funds, exchange-traded funds (ETFs), gold, money market instruments, cash and cash equivalents, etc. Keep your investment horizon, financial goals, and risk appetite in mind while diversifying your investments.
Keep your financial goal in mind
As mentioned above, your decision to invest in mutual funds must be based on your financial goals. For instance if you want to cater to your short-term goals such as paying your child’s tuition fees, or planning a trip in a few years, then you might consider investing in liquid funds. If you wish to achieve long-term goals such as financing your child’s higher education or marriage or creating our retirement corpus, then you might consider investing in equity funds. If you wish to invest in tax-saving investments then you might consider several Section 80C investments such as ELSS funds, Public Provident Fund (PPF), bank fixed deposits (FD), Senior Citizen Savings scheme (SCSS), Post Office Monthly Investment Scheme (POMIS), etc.
When should you redeem your investment?
Your work does not end at mere investing. There are several things you need to do post investment such as analysing and tracking your investments and eventually redeeming them at the right time. If your fund is consistently delivery poor returns, then you might consider switching to another type of mutual fund. Be careful of the exit charge. You can also use a lumpsum calculator to analyse the future value of your mutual fund investments. Happy investing!
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