A YouTube viewer in response to our recent video – Do not stop or redeem your equity investments! Now is the best time to invest! – responded: “Thank you, Pattu Sir, I am continuing with my SIPs with 45:55 Allocation (Equity: Debt). So, is it ok to put a LumpSum at this time as my desired allocation is 65:35 (Equity: Debt) and currently well short of this? Or Should I stick to SIPs and let them do the Job?
I would first recommend a rethink of your desired asset allocation. A 65% equity exposure is not that high, but what matter is, do you have a strategy to reduce risk progressively as you head towards the goal deadline? As we have shown, this much be done well in advance and not just before “three years” as many “experts” proclaim. See: How to systematically reduce risk in your investment portfolio. So even if you get to 65% equity, how long you will keep it at that level matters.
Technically, if you have access to extra cash or some liquid debt, you can consider investing the cash into equity or rebalancing from debt to equity. However, your capital market experience and sense of loss or regret matter.
How would you react if, after investing the lump sum, the market either crashes or, worse, takes another five years to recover? The answer to this is not an STP, as many investors believe.
I could run an STP for 12 months and gradually deploy the lump sum, but once the STP stops, there could be a crash or poor returns for several years. Which amounts to more or less the same thing.
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Therefore, assuming this is for a truly long term goal, you can gradually invest the lump sum into equity. There is no need for STPs. You can manually transfer the amount in small chunks directly from your SB account to the equity funds.
However, be mentally prepared to face poor returns. Also, do not assume deploying the lump sum in the current market will fetch better returns than doing so during a bull run. In the long run, it all evens out to the same benefit!
This is the above-mentioned video and the related article: Do not stop or redeem your equity investments! Now is the best time to invest!
Related resources
- How to invest a lump sum of Rs. 10 lakhs in equity mutual funds?
- Will a lump sum investment beat a SIP over 15 years?
- SIP vs Lump Sum Investment: Which reacts to market changes more?