Investing Large Sums in Mutual Funds

Investing Large Sums in Mutual Funds

Quite a few times I am asked by our Mariners about investing money in lump sum.

Sometime this arises from the desperation of FOMO or fear of missing out in the markets, and sometimes simply because a person has not been investing in the past, and has reached an age when he realized that he should have started earlier.

In both cases, I try my best to wean this person away and to satisfy his desperation.

I tried to tell them that at Best if they want they can increase the amount of their SIP or Stp (systematics as I call them ).

Only once in a while, I come across people who have come into large sums of money by selling real estate or by virtue of inheritance after the parents have passed away .

what our Mariner does not really understand is that the sums that they contribute as systematics is more than what other people would be investing as bulk . e.g. your single SIP of 25,000-50K May actually be the bulk investment of a person earning ashore

So it is the definition which changes in the context.

Still, to answer the question whether one should invest in bulk if one has the money or should one follow the SIP I will suggest following hybrid route:

1. When will you come into large sum of money which is more than your 1-2 month’s salary please treat it as a modest sum, and continue with your SIP. At best you can make 3 to 6 bulk purchases of not more than 5% of your amount at hand..
2. If you have acquired an amount which is more than your above salary and you wish to make some bulk purchases, then do so in their existing funds only, if they are doing well and do not try to increase the number of funds.
3. For the purpose of bulk purchases, try to not make a single investment of more than 10% of the available funds with you. Try to continue with your existing Systematic or increase them if you like.
4. If You are fortunate and you find that while continuing with the above ,the market has taken a correction downwards, then invest up to 10% of your total corpus for first 5% fall in the market. if you still have appetite for risk, then invest 15% for the next 5% and 20% for the next 5% fall.
5. The above is a formula which I adopted in 2020 when the market melted ,as most of you know. this allowed me to make my investments in a hybrid mix of Stp, SIP and bulk from the month of February to September 2020. However, I did not stop the systematics before this amount actually depleted and my fixed income portion came down to my pre-reset 25%.
6. There are a lot of calculations by financial advisors, floating in the market about investing more in bulk when the market goes up and Vice versa. But I am not tempted to follow any of them. Our investing journey should be long and our test is in retaining that investment for as long as possible while maintaining our asset allocation..

I hope this will satisfy you and your future queries, and you will be not tempted to time the market and continue with systematics.