Is it fine to invest a lump sum in tax-saving mutual funds?

Since the investment in a tax-saving fund is locked in for three years, is it fine to invest a lump sum? Or, should one still go with the SIP mode?
- Amit Sethi

Ideally, one should go with the SIP mode. I understand that you do SIP primarily to manage your mental makeup, so the three-year lock-in comes in very handy from that standpoint. But if one is going to invest in a tax-saving fund over the next 10-15 years and make an annual investment, then effectively, that is your SIP. It's just that the periodicity of it is annual. And because you get locked in, you don't behave erratically since you don't react to market movements. It is very natural to get nervous when you witness a significant decline.

So, if you haven't started investing, you may make a lump sum investment. But since we earn every month, why not be disciplined with our investments?

This article was originally published on October 14, 2021.