How to choose the best lumpsum investment options in 2023?
Lump sum investment refers to a method of investing where an individual allocates their entire capital in a single transaction. This one-time payment can be made to acquire an asset, such as a stock, bond, real estate, and even a commodity.
The benefits of lump sum investing are significant. Compounding works on the entire capital from the beginning, leading to better returns. Market fluctuations can be leveraged to purchase low-priced assets and sell them at higher values. It also saves time, as you do not have to worry about regular investments and offers a quicker route to fulfil your financial goals.
However, with greater returns come increased risk. Since you are investing a lump sum amount, you want to make sure that you choose the right option to let it grow. Having said that, here are some key factors you can consider to narrow down your choices and select the best lump sum investment options to maximise returns and minimise risks.
- Check past performance
Whether you want to make lump sum investment in mutual funds or stocks, evaluate how they have performed over the last several years to gauge how they may perform in the future. Analyse their returns over different time periods, such as the last 1, 3, or 5 years.
Moreover, look at the fund’s volatility, or the degree of fluctuation in the fund’s price during bull and bear markets. This will help you determine the risk with an investment option.
Past performance does not guarantee future results, but it can help you with your investment decisions.
- Check investment fees
Various fees come along with investments, such as broker fees (charges for the services provided by a broker or financial advisor), trading fees (costs associated with buying or selling investments), and expense ratios (annual fees charged by mutual fundsto cover operating costs). These fees can reduce your investment returns. Thus, it is crucial to compare them across different lumpsuminvestment options to get the best value for your money.
While it may be tempting to always choose investments with the lowest fees, note that some investments may have higher fees but also offer better returns. So, weigh the costs against the benefits before finalising your decision.
- Select reputable providers
Look for providers with a good track record, a strong background, and who are regulated by regulatory bodies like SEBI. A reputable provider usually has a transparent policy and provides you with all the necessary information about the investment products and services they offer. You can also research online to find reviews and ratings from other investors or consult with a financial advisor for recommendations.
- Understand the risks involved
Almost all types of investment carry some risk. The key is to assess the level of risk you are comfortable with. This can be determined by evaluating your age, income, expenses, liabilities, goals, and budget. Higher risk usually means higher potential returns but also a higher chance of losing money.
To mitigate risks, you must diversify your portfolio with different asset classes such as stocks, bonds, gold, or real estate. This will spread your investment risk and protect against underperforming securities. Seek guidance from a financial advisor to identify the best mutual funds or stocks for your portfolio and long-term goals.
Right investment options can significantly affect the outcome of your lump sum investment. And by diversifying your portfolio, researching market trends, and avoiding emotional or impulsive decisions, you can minimise risks and maximise your investments value. Most importantly, invest objectively, stay patient during volatile times, and maintain an emergency fund to cover unexpected expenses so that your investments remain intact and continue to grow.