Let’s say I want to invest in a mutual fund and have ₹1 lakh to spend. Well, I have some surplus money and the market has been declining for the past 6 months, so it looks like now is a good time to make a lump sum investment. This way, I can get more NAV units at a cheaper price.
Regardless of the amount you plan to invest, be it ₹10,000 or ₹20 lakhs, I will explain how to strategically approach lump sum investments, how to select a fund, and what key points to consider. And even if you don’t have 1 to 2 lakhs at hand, don’t fret. I’ll give you a tip at the end of how you can take advantage of the market decline.
Make sure to read until the end where I share how consistent, smaller, interval investments can help you capitalize during this market correction.
Let’s get started:
Check Your Emergency Fund
Before you commit to any lump sum investment, ensure that you have an emergency fund.
What is an emergency fund?
It is money reserved for surprises like medical emergencies and job loss expenses.
When you are an investor, having an emergency fund of no less than six months worth your monthly expenses is ideal.
Having an emergency fund is essential. Focus on that before investing whatsoever. Even if the market is up or down, always remember that emergencies happen when they want to.
Define Your Investment Goal
Think of the reason behind your investment, isn’t it?
Would it be:
- A wedding?
- Purchasing a vehicle?
- Buying a house?
- Financial accumulation to build wealth in the future?
Your investment plan differs significantly if it’s a short-term goal (1-2 years).
Suppose it’s for the long term (5-10 years or more). Then you may purchase take more risks in the market.
For this case, let’s say I am investing for the long term. Not for one to two months, but for years, because long-term investment fosters wealth accumulation.
Factors You Must Consider
For this part, let’s explore how much risk you can “safely” take.
If you are looking into venturing beyond your comfort zone, consider investing in mid and small-cap aggressive funds.
Those who prefer slower-paced growth opportunities can invest in large-cap or flexi-cap funds.
When making investment decisions, never allow past performance to mislead you into choosing a specific fund.
Select it according to your personal risk profile and investment objectives.
Examine the Overall Sentiment of the Market
Let’s have a quick look into the market:
Nifty 50 is down about 14% from its 52-week peak.
Nifty Next 50 is down 23.7%.
Nifty Midcap 150 and Small-cap 250 are down approximately 20-24%.
Microcap indices are down anywhere between 25-40%.
👉 Key Takeaway:
Large capitalization is experiencing less of a decline, while mid capitalization, small capitalization, and micro capitalization are experiencing sharper declines.
In addition, the Nifty P/E ratio is below 20, which is considered an attractive buying zone (historically, points between 18-20 are a good entry point).
Best Options for Investment
Your risk profile determines which fund you choose:
✅ For low expense ratio along with diversification, choose passive investments such as ETFs or Index Funds (Nifty 50 or Nifty Next 50)
✅ If you are moderately aggressive, consider Flexi Cap, Multi Cap, and Small Cap mutual funds for better long-term returns.
✅ If your investment horizon is 2-3 years, consider Large Cap or Next 50 funds because these funds tend to recover the most post market dips.
Strategy for Investment
Let’s say I have ₹1 Lakh to invest:
I will not use up the whole amount in a single investment.
I will divide the investment in three parts:
- Invest ₹50,000 right now.
- If the market falls further, invest ₹25,000 after one or two months.
- If the correction deepens or stabilizes, invest the remaining ₹25,000 later.
- ✅ This strategy of averaging costs with timing the market balances the two without being overly complicated.
- ✅ If you already are doing SIPs, does not matter, keep them running, only don’t stop SIPs during falls.
What If You Don’t Have a Lump Sum?
If sitting idle, one or two or five Lakhs, is not the case for you then don’t worry.
Here is the tip:
Keep running your SIPs.
During the slump, for the next six to twelve, increase the SIPs by 10%-20% on a monthly basis.
For instance, if your investment amount is usually at 10,000, increase it to 12,000 or 13,000 per month.
This allows acquiring additional units at a more advantageous NAV, despite no large sum being required.
👉 Important: After the recovery of the markets, do not change SIP amounts, resume to your usual amounts.
Tips for Investors
- Bill the timing volatility as part of the new normal.
- Investing is a long-term process.
- While waiting out, keep busy with your career, do not focus on non-stop NAV checks.
- Recoveries in the market have given excellent rewards to investors with patience in the past.
- India’s economy is currently strong, and Indian markets are projected to do well in the long term.
- Be smart with your investments. Invest once, stay invested, and let compounding do its magic.
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