Dhirendra Kumar explains the pros and cons of investing a lumpsum vis-a-vis an SIP in equity funds
Is this the right time to make a lumpsum investment of Rs 10 lakh in equity funds? I have an investment horizon of 10 years.
- Gajendra Irkulla
Rs 10 lakh could be meaningful for you, or it could be a trivial amount of money for you. If it is the latter, then, by all means, you can take your chances and invest a lump sum. But, it is never a good time to make a lump sum investment for any meaningful amount of money. It is not a good time to make a lump sum investment any time of a significant amount because we panic if the market crumbles. If the market goes down by 10 per cent after you have invested this amount, you will panic. The result of that panic soon after you invest and the market tanks is that you take your money out, and it distracts you from the primary goal of investing in equity for the long term.
So investing steadily has its benefits. Yes, if you want to take fewer chances, make your investments over the next 12-15 months, and if it is a significant amount in your context, spread it over the next 18-36 months. If the money is not that important, you have saved in the last year, maybe invest over the next six months. You will still be averaging your investments.
By following my advice, you might also miss an opportunity of investing a lump sum and generating a little more returns. But I think the reward of being a disciplined and patient investor, inculcating that habit, is that you derive the benefit for a lifetime, and it just makes it worthwhile.