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Is it advisable to invest in debt funds in lump sum?

Ashutosh Gupta explains why you can invest a lump sum in debt funds but should always choose the SIP route while investing in equity funds

I have redeemed Rs 15 lakh from my equity funds recently and I want to re-invest it in debt funds. Is it advisable to invest in one go or should I do SIP of two-three years?
- Dr Rajesh Mevada

Well no, there is no need for an SIP because this money is meant to be invested in a debt fund where it is fine to invest in lump sum. You can invest in lump sum in any debt fund if you have a lump sum amount at your disposal. So you can go ahead and invest in one go.

Broadly, SIP is meant to be a mode of investment for asset classes which are very volatile, which can subject your investments to deep corrections at a certain points in time. The whole concept of an SIP is to avoid the possibility of investing a substantial portion of your money right before a deep correction. Because if that happens, then the journey back to recover your principal investment itself could be long and painful, forget about the returns. So that's why the idea is to invest in these asset classes in smaller amounts at different levels of the market rather than investing all or substantial part of your money in one go.

But that is not the case with debt markets because they don't subject you to a volatility of that magnitude that you need to smoothen out your cost of holding. So that's why there is no need for an SIP investing. Remember that a big portion of the returns in case of debt funds comes through the coupon payments which accrue over a period of time and they are really not impacted by the level of the market. So that's why it's perfectly fine to invest at one go in debt funds.

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