I have recently started investing in mutual funds with a one-time investment in ICICI Prudential Tax Saving Growth Plan. I want to start with a systematic investment plan (SIP) from April, and invest my bonus amount that I will get in June as a lump sum. I want to invest in such a way that my tax investments are taken care of. Which fund would be good for a Rs.3,000-4,000 monthly SIP, and which for lump sum?
—Radhika Awasthi
When it comes to whether to invest as a lump sum or through an SIP, it depends on the type of mutual fund scheme more than anything else. And in turn, the type of scheme depends on the time frame of investment, and other factors such as risk tolerance levels.
The thumb rules to follow are: one, equity funds are always better invested in a periodic, systematic fashion, while lump sum investments are better made in debt funds. Also, remember that getting a lump sum in your hand does not mean you would have to invest all of it in one go. Second, the longer the investment time frame, the better suited are equity funds as a choice. Please note that tax-saving funds are always equity funds.
Applying these thumb rules to your situation, with the assumption that you are investing for the long-term (at least 5 years, if not more), you should first take care of your tax-saving investments for the next financial year.
Since these are equity funds, you should ideally invest in them through an SIP. So, you can continue in ICICI Prudential Tax Saving Fund for your SIP.
The lump sum (bonus amount) that you are getting can be placed in a liquid fund in one go (a liquid fund is a low-risk debt fund). From this fund, you can set up a Systematic Transfer Plan (STP) into an equity fund over the period of the next 12 months. For example, you can make a lump sum investment in a liquid fund from Birla Sun Life Mutual Fund, and set up an STP of 12 equal instalments to Birla Sun Life Frontline Equity Fund.
