If you have a lump or a huge sum of funds lying idle, it’s critical to invest them in a lucrative financial instrument. By lucrative we mean, an investment vehicle that doesn’t have a low investment cap and promises attractive returns at minimal risk.
Making a one-time high-value investment requires a certain level of market acumen, basic research of the right tools, and an assessment of your personal returns goal. Not sure what we’re on about? Keep reading to learn more.
4 investment strategies for the lump sum investor
Before you invest a lump sum, adhere to the following tips.
1. Lock investment horizon
You might want to invest a lump sum for as little as a year or for as long as you retire. Instruments such as mutual funds (MFs)areavailable for investors with all timelines. You can invest based on your financial goals.
For instance, if you want to fund your toddler’s higher education abroad, long-term investment in debt funds will get you healthy returns at low to moderate risk. However, if you wish to purchase a luxury vehicle, investing for short-term in equity-linked funds for a period of 2 to 5 years will likely work better. These funds promise higher returns fast at moderate to high risk.
You can also balance your lump-sum investment by parking funds in both equity and debt funds by opting for hybrid MFs. These funds invest in both equity and debt instruments in specific ratios.
The point is, you must identify your end financial objective as that will help you lock your investment horizon for a prudent lump sum investment.
Additional Read – Timed lump sums vs SIPs: What works better?
2. Check market timing
One of the most critical high-value investment tips is to park your lump sum only after studying the market. If the market is volatile, hold off on investing a large sum just yet. Instead, start a Systematic Investment Plan (SIP) and break the lump sum into small monthly contributions.
Like it or not, in a volatile market, your lump sum’s value can quickly go up but just as easily fall flat. And, this can be disconcerting to even the most risk-seeking investors.
Therefore, study the market before investing a lump sum, and wait till the volatility settles. Here, we are not talking about minor but severe market volatility.
3. Invest a chunk in liquid funds
It’s always a good idea to invest a chunk of your lump sum in liquid MFs. This way, you have a significant amount of funds that can be liquidated within 24 hours, should an emergency strike. Anyway, staying liquid while earning returns also provides you with an opportunity to re-park funds in another MF, which suddenly starts giving top-dollar returns.
Liquid MFs are debt-linked funds that invest in government securities, treasury bills, commercial papers, etc. These offer significant returns at Low to Moderate risk.
4. Track historical returns
Before making a high-value investment, study the fund’s track record, also called historical returns. You should be able to find these online. Measuring historical returns is critical as that help you predict the future returns of a fund.
Moreover, if you find funds that are performing exceptionally well but were consistently underperforming for the last five years, you know to stay wary of them.
Additional Read – Everything you need to know about Value Investing
Over to you
Investing a lump sum of money becomes easy if you have the four tips mentioned above in your kitty.
Looking for a way to invest a large sum? Turn to Tata Capital Moneyfy – your one-stop digital investment portal. Visit our website to compare and apply for a diverse set of MFs and SIPs. All the MFs on our website come with ratings from Value Research and Morningstar.
You can also access our services through your smartphone by downloading the Moneyfy app.
So, why wait? Start investing today!