The fact that mutual funds come with such a wide array of schemes that they have something to offer to every type of investor is increasing their popularity day by day, possibly making them the best investment option today.
There are two ways of investing in a mutual fund scheme – traditional one-time investment plan (lump sum investment) and systematic investment plan (SIP).
Best One-Time Investment Plan Vs SIP
The one-time investment plan (lump sum investment) is an ideal mode of investment for seasoned investors who prefer to invest a chunk of money in one go during market downturns rather than investing at regular intervals via a SIP.
Such investors are generally better versed with the ins and outs of the stock market and thus often prefer to invest in the direct plan of a mutual fund scheme.
Lump sum investments are generally made for longer terms which improves the chances of earning higher capital gains.
The SIP mode is generally preferred by investors who would like to invest small amounts at regular intervals. This investment method helps them build a corpus at a steady speed, and could be the preferred channel for a salaried employee or person who has newly become part of the workforce.
New investors who have limited or no knowledge about investing in the stock market generally prefer to invest in the regular plan of mutual funds in which all the market research is done by a broker or agent on behalf of the investor for a commission.
SIP investment can be made for both short and long term periods depending upon the investment horizon and investment objective of the investor.
Advantages of Investing via One-Time Investment Plan
- Convenience: Investing via a one-time investment plan is relatively more convenient than a SIP as you pay only once and your investment can grow. hat said, the auto-debit availability makes a SIP investment easier to invest too. . The difference is probably psychological.
- Capital appreciation over time: With the one-time investment plan, the chances of appreciation of wealth increases as the investment has time to adjust to market corrections and grow significantly.
- Low Charges: Another advantage of lump sum investment is that it results in lower transaction costs as such investments are generally made for longer durations. Short- term investments often attract exit load and higher taxation liabilities.
Disadvantages of Investing via One-Time Investment Plan
- Undisciplined Investment: Lump sum investment plan does not encourage investment discipline.
- No investment adjustment: With the one-time investment plan, an investor cannot spread his/her investment over the highs and lows of the stock market. Thus, he/she is exposed to a greater degree of risk of not being able to bounce back from an investment decision made at a wrong time (during bullish runs when they buy lesser units due to higher prices).
Factors to Consider Before Investing in One-time Investment plan
- Check Market Valuation: Although it is impossible to time the markets, you should try to assess the market’s valuation before making a lump sum investment. You can check the Price to Earnings (P/E) ratio of a broad market index like NIFTY for last 3-4 quarters to get an idea around the current market valuation. The P/E ratio tells you the market has been valued in comparison to its earnings .
- Estimate Potential Returns and Liquidity Expectations before Investing: Before investing, you must analyse the factsheet of the mutual fund scheme in which you intend to invest to understand what kind of returns the scheme if capable of providing. You should also see if the scheme meets your liquidity requirements. Liquidity of an investment tells you how easily it can be converted into cash without much loss in value.
Patience: The only thing which distinguishes investors from traders is patience. You should give enough time to your investment to grow instead of exiting from the scheme due to short-term negative market movements.
Ques. Can I invest only one time in a mutual fund?
Ans. If you choose to invest in mutual funds using the Lumpsum mode of investment, you will have to pool in all your funds at once. On the other hand, if you choose to invest through the SIP mode, you will have to invest a little amount at fixed intervals.
Ques. Which is a better SIP or one time investment?
Ans. Choosing the mode of investment is entirely the investor’s personal choice. However, if you are unable to invest a huge amount of money at once, SIP mode should be preferred. You can read more about the differences between SIP and One time investment here.
Ques. Which is the best mutual fund for one time investment?
Ans. Here are the top 3 mutual funds for one time investment-
- Indiabulls Blue Chip Fund – Direct Growth
- SBI Bluechip Fund – Direct Growth
- ICICI Prudential Bluechip Fund- Direct Growth
Ques. Which is the Best One Time Investment Plan for a Child In 2020?
Ans. Best One time investment plans for children are as follow-
Suggested Read: Best Mutual Funds for Children to Invest in 2020
You may also like to read – the difference between sip and Lumpsum
You would like to read – how to invest in mutual funds
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