Lumpsum Investment - Meaning, Benefits and How it Works (2024)

Alumpsum investmentrefers to a one-time investment in a particular scheme for a specific duration. Know more about the advantages, and factors that you should consider before opting for lump sum investment.


Lumpsum Investment


4 mins read

30 Mar 2024

In the world of mutual fund investments, 'lumpsum investment' holds considerable importance. Unlike the widely favoured Systematic Investment Plan (SIP) approach, this entails a single investment in a specific mutual fund scheme. If you plan to grow your wealth systematically over time, investing is the way to go. When it comes to investing, there are two types of payment methods- lumpsum and Systematic Investment Plan (SIP). Let us understand what lumpsum investment is, how it works, and its advantages over other forms of investments.

What is lumpsum investment in mutual funds?

A lumpsum investment in mutual funds is a one-time payment made in full at the beginning of an investment period. It is a single, large payment made upfront, without any subsequent payments. It can be made for various purposes, including investments, insurance premiums, retirement plans, and more.Fixed depositsare also generally booked by making alump suminvestment.

How does lumpsum investment work?

The value of a lump sum investment is contingent on the market performance of mutual funds, and there exists a standard formula for estimating its returns. The formula is expressed as:

A = P (1 + r ÷ n) ^ nt

Here, the variables represent the following:

  • A: Estimated return
  • P: Present value of the invested amount
  • r: Estimated rate of return
  • t: Total investment duration
  • n: Number of times interest is compounded within a year

What are the features of a lumpsum investment?

Here are the key features oflumpsum investments:

  1. Single contribution: Unlike systematic investment plans (SIPs), which involve regular contributions,lumpsum investments entail a one-time, substantial investment into a mutual fund scheme.
  2. Immediate deployment: The entirelumpsum amount is deployed in the mutual fund scheme immediately upon investment, providing immediate exposure to the underlying assets.
  3. Market timing:Lumpsum investors must decide when to enter the market. The timing of the investment can have a significant impact on returns. Entering the market during a favorable period can result in higher returns, but it also exposes investors to market volatility.
  4. Lower administrative requirements:Lumpsum investments typically have lower administrative requirements compared to SIPs. There's no need for periodic contributions or setting up recurring transactions, simplifying the investment process.
  5. Higher initial risk: Due to the single, larger investment,lumpsum investors often face higher initial risk. The value of the investment can experience immediate fluctuations, which could lead to substantial gains or losses.

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Investment amount:

  • Lumpsum:In alumpsum investment, you invest a substantial amount of money in a mutual fund scheme in a single transaction.
  • SIP:With SIP, you make periodic, usually monthly, investments in a mutual fund with a fixed amount.

Market timing:

  • Lumpsum:In alumpsum investment, you enter the market at a specific point in time, risking potential market fluctuations.
  • SIP:SIP allows you to invest regularly and benefit from rupee cost averaging, buying more units when prices are low and fewer units when prices are high, reducing the impact of market volatility.

Risk management:

  • Lumpsum:Lumpsum investments can be riskier due to their sensitivity to market conditions at the time of investment.
  • SIP:SIP spreads your investment over time, helping manage market risk and reducing the impact of market volatility.

Investment discipline:

  • Lumpsum:Lumpsum investments do not necessarily enforce a disciplined approach to investing.
  • SIP:SIP promotes discipline, as you commit to regular investments regardless of market conditions, fostering a systematic and long-term approach.

Initial investment size:

  • Lumpsum:Alumpsum investment usually requires a larger initial amount, which may not be feasible for all investors.
  • SIP:SIP allows you to start investing with a smaller initial amount, making it accessible to a broader range of investors.

Which will give better returns –lumpsum or SIP?

The answer to this question depends on various factors, such as the investment period, market conditions, and the type of investment. While bothlumpsumand SIP investmentsmay offer good returns, the returns from lump sum investments tend to be higher over the long term. This is because it allows the investor to take advantage of the market's ups and downs, leading to a better return on investment (ROI).Using the SIP calculator and Lumpsum Calculator to assess the suitable investment approach aligned with your future objectives. With this knowledge, you can make an informed decision between SIP and lumpsum, selecting the more advantageous option.

Advantages of lumpsum investment over SIP

Some of the advantages of lumpsum investment over SIP include:

  1. Higher returns:Alumpsum investment offers higher returns over the long term. This is because the entire amount is invested upfront, and the investor can take advantage of the market's fluctuations.
  2. Lower costs:It helps save on transaction costs since there is only one transaction and also lower investment management fees, as compared to SIP investments.
  3. Flexibility:Alumpsum investment provides more flexibility in terms of the investment period, as the investor can choose the period according to their financial goals.

How to invest in mutual with lumpsum payment?

  1. Visit the Bajaj Finserv website or download the app from Google Play Store or App Store
  2. Navigate to 'Investments' and click on 'All Investments' on the home page
  3. Click on 'Mutual Funds' icon
  4. Click on 'Explore Funds'. You will be redirected to the mutual funds listing page
  5. Filter by scheme type, risk appetite, returns, etc. or choose from the top performing funds list
  6. All the mutual funds of the particular category will be listed, along with the minimum investment amount, annualised return, and rating
  7. Click on 'Invest Now'
  8. Enter your mobile number and sign in using the OTP
  9. Verify your details using your PAN, date of birth. If your KYC is not complete, then you will have to upload your address proof and record a video
  10. Enter your bank account details
  11. Upload your signature and provide some additional details to continue
  12. Choose and select the mutual fund that you want to invest in
  13. Choose yourinvestment optionas lumpsum and enter the investment amount. Click on ‘Invest Now’
  14. Select your payment mode i.e., net banking, UPI, NEFT/ RTGS
  15. Once your payment is done, the investment will be complete

Your investment will start reflecting in your portfolio within 2-3 working days.

Factors to consider before investing in lumpsum investment

Before investing alumpsum amount, consider the following factors:

  1. Risk tolerance:Lumpsum investments come with a higher level of risk, and it is essential to consider your risk tolerance before investing.
  2. Investment goals:Determine your investment goals and choose an investment product that aligns with them.
  3. Market conditions:Study the market conditions and choose an investment product accordingly. It is also essential to keep track of the market and make necessary changes to your investment portfolio when required.
  4. Time horizon:Consider your investment period and choose an investment product that suits your time horizon.


Individuals can make mutual fundinvestmentsby regularly investing in a SIP. You can also make alumpsum payment whenever they receive windfall income or a bonus. Closed-ended mutual fund schemes only accept a lumpsum investment. In this, the entire investment is made up front. Investors can choose the mutual fund scheme according to their financial goals and invest the entire amount in one go.Lumpsum mutual fund investments come with a higher level of risk, but they also offer the potential for higher returns over a period.

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Frequently asked questions

What is the return rate of lumpsum?

While the value of the return on a lump sum mutual fund investment relies on market performance, all lump sum calculators utilise a formula to determine the value of returns on lump sum investments. The compound interest formula is used to calculate your return.

The formula is:
A = P (1 + r/n) ^ nt

A = estimated return
P = Present value of invested amount
r = estimated return rate (%)
t = overall investment duration
n = number of times the interest is compounded
You can also use the Bajaj Lumpsum Calculator to calculate potential returns

Is lump sum investment good?

For investors with a long-term investment horizon of five to seven years, lump sum investing offers respectable returns. It frequently could assist in achieving particular monetary objectives, such as investing for a child's education fund or a retirement fund. It necessitates a one-time, substantial capital outflow.

Which is more beneficial lumpsum or SIP?

The state of the stock market affects the response to this query. While investing in mutual funds lump sum gives substantially higher returns during bull markets, investing in mutual funds via a SIP typically offers superior returns during bear markets.

What are the different types of mutual fund schemes?

The different types of mutual fund schemes are:

  • Equity Mutual Fund Scheme:Invests mostly in equity-related securities and instruments. Equity funds lets you invest in a diversified portfolio which is exposed to different sectors of the economy.
  • Debt Mutual Fund Scheme:Invests mostly in capital-appreciating fixed income assets such corporate and government bonds, corporate debt securities, money market instruments, etc.
  • Hybrid Mutual Fund Scheme:Invests in both equities and debt to strike a "balance" between income and growth. The regular income from the debt instruments gives the returns on such funds more stability.

How accurately does an investment calculator predict returns?

Investment calculators provide a close estimate of returns, considering various market factors, but actual results may vary due to market fluctuations.

How does someone start making lumpsum investment?

To start a lumpsum investment, one needs to select a suitable investment option, determine the investment amount, and make a one-time payment.

Who can invest in lumpsum mode?

Lumpsum investments are open to anyone with the financial capacity to make a substantial one-time investment.

How much NAV is considered good in lumpsum investment?

There isn't a fixed "good" NAV for lump sum investments; it depends on the fund's historical performance, investment goals, and market conditions.

What are the disadvantages of lumpsum investment in mutual funds?

Lumpsum investments in mutual funds lack the benefit of cost averaging and can be subject to market timing risks. Additionally, a large initial investment may lead to higher exposure to market fluctuations compared to periodic investments.

Can I convert lumpsum to SIP?

Yes, you can convert a lumpsum investment into a Systematic Investment Plan (SIP) by redeeming the lumpsum units and reinvesting the proceeds in an SIP. This strategy allows for gradual investment and can help manage market volatility and timing risks.

Can I add more money in lumpsum mutual fund?

Yes, you can add more money to a lumpsum mutual fund investment by making additional lumpsum contributions. This allows for flexibility in increasing your investment exposure according to your financial goals and market conditions.

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Bajaj Finance Limited (“BFL”) is a Non-Banking Financial Company carrying the business of acceptance of deposits, providing lending solutions to Retail & Corporate customers, and is a Corporate agent of various insurance Companies. BFL is also registeredwith the Association of Mutual Funds in India (“AMFI”) as a distributor of third party Mutual Funds (shortly referred as ‘Mutual Funds’).

BFL does NOT:

(i)provide investment advisory services in any manner or form;

(ii)perform risk profiling of the investor;

(iii)carry customized/personalized suitability assessment;

(iv)carry independent research or analysis, including on any Mutual Fund schemes or other investments; and provide any guarantee of return on investment.

In addition to displaying the Mutual fund products of Asset Management Companies, some general information is sourced from third parties, is also displayed on ‘As-is’ basis, which should NOT be construed as any solicitation or attempt to effect transactions in securities or the rendering any investment advice. Mutual Funds are subject to market risks, including loss of principal amount and Investor should read all Scheme /Offer related documents carefully. The NAV of units issued under the Schemes of mutual funds can go up or down depending on the factors and forces affecting capital markets and may also be affected by changes in the general level of interest rates. The NAV of the units issued under the scheme may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities. The NAV will inter-alia be exposed to Price / Interest Rate Risk and Credit Risk. Past performance of any scheme of the Mutual fund do not indicate the future performance of the Schemes of the Mutual Fund. BFL shall not be responsible or liable for any loss or shortfall incurred by the investors. There may be other / better alternatives to the investment avenues displayed by BFL. Hence, the final investment decision shall at all times exclusively remain with the investor alone and BFL shall not be liable or responsible for any consequences thereof.

Bajaj Finserv Direct Limited, (“BFDL”), a wholly owned subsidiary of Bajaj Finserv Limited (is a Registered with SEBI as an Investment Advisor with Registration no. INA000016083). BFDL enables resident Indian customers to directly invest in third party mutual funds through its online platform. BFDL entered into a referral arrangement with BFL, whereunder, BFL may, without risk or responsibility on its part, refer the resident Indian customers who are interested in placing their investments in Direct Mutual Funds through BFDL online platform. Investment by a person residing outside the territorial jurisdiction of India is not acceptable nor permitted.

Disclaimer on Risk-O-Meter:
Investors are advised before investing to evaluate a scheme not only on the basis of the Product labeling (including the Riskometer) but also on other quantitative and qualitative factors such as performance, portfolio, fund managers, asset manager, etc. and shall also consult their financial advisers, if they are unsure about the suitability of the scheme before investing

Lumpsum Investment - Meaning, Benefits and How it Works (12)

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Lumpsum Investment - Meaning, Benefits and How it Works (2024)


What are the benefits of lump sum investing? ›

Investing a lump sum means that you don't have to try to figure out the best time to make periodic investments. You can set up your portfolio and let it grow. A 2021 Northwestern Mutual Life study showed that investing a lump sum generally outperforms dollar-cost averaging over various periods of time.

How does lump sum investment work? ›

What is a lump sum investment in a mutual fund? When you invest in a mutual fund in a lump sum, it means a single, bulk amount locked into a one-time mutual fund investment. This is as opposed to spreading it out over time, like in SIP (Systematic Investment Plans).

What is lump sum and how does it work? ›

Lump sum payment is a single payment of money i.e., one-time payment, as opposed to installations or series of payments. It is most commonly used in the context of pensions, when one has the option of receiving a lump-sum pay-out from your pension provider or smaller payments over time, or a combination of both.

What are the benefits of investment briefly explain each benefit? ›

An investment portfolio can help you achieve your long-term financial dreams. For example, build a nest egg for your retirement, repay your mortgage early, or pay university fees for your children.

What are the advantages and disadvantages of lump sum? ›

While lump sum contracts benefit from simplicity, they also present risks to both owners and contractors. Contractors may be incentivized to cut corners to stay under budget. May be on the hook for added costs due to change orders. Inaccurate estimating could cut into profit margin.

What are the advantages and disadvantages of lump sum payments? ›

Advantages for contractors include clear directions, less paperwork and a potential for profit if the project comes in well under budget, and disadvantages include risk if the project is more costly than expected.

What is the best way to use a lump sum of money? ›

What to do with a large sum of money
  1. Step 1: Don't feel like you have to rush. ...
  2. Step 2: It's OK to spend a little. ...
  3. Step 3: Pay off high-interest debt. ...
  4. Step 4: Build up your emergency fund. ...
  5. Step 5: Save for short-term goals. ...
  6. Step 6: Invest it.
Jan 19, 2024

Is lump sum a good option? ›

In most cases, the lump-sum option is clearly the way to go. The main difference between a lump-sum and a monthly payment is that with a lump-sum option, you get to have control over how your money is invested and what happens to it once you're gone. If that's the case, then the lump-sum option is your best bet.

What are the disadvantages of lump sum investment? ›

What are the drawbacks of a lump sum investment in a mutual fund? - Quora. The main drawbacks of a lump sum investment in a mutual fund are: Market Timing Risk: Timing the market correctly is difficult, and if you invest a lump sum at a market peak, you may end up losing money.

How much money do you get if you take the lump sum? ›

Taking a lump sum means you will receive 40 to 50 percent of the jackpot for immediate use or investment. Lottery winners who opt for an annuity receive annual payments (and more money) over time. Some states allow selling the annuity for a discounted lump sum if preferences change. Need Help Accessing Your Money?

Is lump sum considered income? ›

Mandatory income tax withholding of 20% applies to most taxable distributions paid directly to you in a lump sum from employer retirement plans even if you plan to roll over the taxable amount within 60 days.

Is it better to pay lump sum or monthly? ›

A lump-sum deposit provides the most substantial impact, especially if it is applied shortly after taking out a new mortgage. Depending on the amount, you can also apply for a recast and have your monthly payment changed based on the new balance.

How to invest money wisely? ›

You can simply keep cash at home or opt to invest in:
  1. Insurance plans.
  2. Mutual funds.
  3. Fixed deposits, Public Provident Fund (PPF) and small savings accounts.
  4. Real estate.
  5. Stock market.
  6. Commodities.
  7. Derivatives and foreign exchange.
  8. New class of assets.

What benefits do investors get in return? ›

The return on an investment is usually quoted as a percentage and includes any income that the investment generates (e.g., interest, dividends) as well as capital gains (price increases). To generate higher expected returns, investors usually need to take on more risk of potential losses.

How does investing make you money? ›

Your investments can make money in 1 of 2 ways. The first is through payments—such as interest or dividends. The second is through investment appreciation, aka, capital gains. When your investment appreciates, it increases in value.

What are the disadvantages of lump sum? ›

Disadvantages of a Lump Sum Construction Contract
  • A lump sum agreement presents a higher risk to a contractor.
  • Measuring the number of changes is difficult.
  • Such contracts require paperwork and records of change orders from each phase, and this means further documentation is needed.

Why do people choose lump sum? ›

The lump sum provides a significant amount of immediate cash. Many opt for this option to avoid long-term tax implications. Annuity payments offer tax benefits and can prevent overspending lottery winnings. They provide guaranteed income, and can lead to more money in the long run.

What is the smartest thing to do with a lump sum of money? ›

Build emergency savings

However you choose to invest your lump sum, it may also be a good idea to build an emergency savings pot. Typically, an emergency savings pot should cover about three months' salary and be quickly accessible so that you can use it whenever you need it.

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