# How to invest a lump sum of Rs. 10 lakhs in equity mutual funds?

Published: June 14, 2022 at 6:00 am

A reader on our Youtube Q & A session asked, ” Hi, First of all, congratulations on providing a platform for people to ask questions. Usecase: Let’s say I have a sum of 10 lacs to invest in the market for the long term(10+ years) for wealth maximization. I plan to park this money into an ultra-short debt fund, and from there, I will do STP to Nifty Index funds.”

“My questions are Q1: Can I do a lumpsum investment of 10 lacs into an ultra-short debt fund, or do I need to use some SIP. If I need to use SIP, how to calculate the SIP amount? Q2: How much should be the STP amount in order to transfer funds from the ultra-short debt funds to Nifty index funds?”

There are some questions an investor needs to ask himself before proceeding.

1: Will this amount be associated with a single goal or multiple goals? If it is the latter, for each goal what is the current asset allocation? If I invest Rs. 10 lakhs in equity what will be the new asset allocation? Is the new asset allocation desirable for each need?

If Rs. 10 lakhs investment into equity will skew the asset allocation the wrong way (too much equity for the need) then it would be better to suitably split the investment between equity and fixed income as per the needs of each goal.

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Now assuming it is okay to invest the lump sum into equity, it is best to define the lump sum.

2: What is the value of this lump sum divided by your current equity investments? For example, if you currently hold Rs. 1 Crore in equity then this lump sum is 10% of your equity investments. If you only hold Rs. 18 lakhs in equity then the ratio is 55%

3: What is the value of this lump sum divided by your monthly investment in equity? For example, if you invest Rs. 4 lakhs each month in equity this lump sum is 2.5 times larger. However, if you invest Rs. 75,000 in equity each month then this lump sum is about 13.3 times larger.

So that gives you a measure of how big this lump sum is. A lump sum that is only 10% or lower than your equity holdings can be invested in one shot or may be spread over a few weeks. The same applies to a lump sum that is only 2-3 times your monthly equity investment.

There is no need to first invest the lump sum in an ultra-short-term fund or any other kind of debt fund. There is no need to start an STP. Directly and manually invest the money from your bank account to an equity fund gradually over a period of your liking – over 10 weeks or over 10 months. It matters little over the long term. See: Investing a lump sum in one-shot vs gradually (STP) in an equity mutual fund (backtest results).

Just choose a duration that makes you comfortable but please do not claim it is a superior choice or will produce a better outcome. No one knows that!

People associated with mutual funds will tell you to first park the money in a liquid fund and then start an STP in an equity fund. They do this to ensure the 10 lakhs stay with them from day one. There is no benefit for the investor in doing this.

I have to make an investment in a debt fund. Can I do this in one shot or should I spread the investment? Investments in short-term debt funds (overnight, liquid, money market etc) can be done in one shot. For longer duration funds, inexperienced investors can invest in a few instalments.

I have to switch a lump sum from one equity fund to another. Is an STP necessary for this? No. You can invest it in one shot. You are only jumping from one frying pan to another.

In summary, once the investor decides a particular lump sum investment in equity is suitable for their future needs, they can spread the investment over a few weeks to a few months as per their comfort and directly invest from their bank accounts to the equity fund. All that matters is that we invest it without hesitation. Over the long term, market volatility will ensure the method of investment is irrelevant.

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(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via or Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “” an organisation promoting unbiased, commission-free investment advice.
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