Parking your corpus at the right place is as important as building one. The correct investment method can give your appreciation or protection as per your investment goals. Many investors tend to choose to invest in equities because of the growth prospects it has. Your money parked in equities could grow exponentially if the stock markets are in favour. But how you invest your lumpsum in equities also matter. There are several methods to go about it, and your choice should be based on your investment goals, risk appetite, and expertise. Let us explore the top four methods of investing your lumpsum in equities.
Investing in stocks directly
The default method of investing in equities is doing it directly. Here, you could create a portfolio of your own and manage it long term, according to your goals. Investing directly has some perks, too – it means you don’t have to pay any management fees, and your investment is highly liquid. Additionally, you could employ your own investment strategies and have a complete say over your trades and portfolios. But this demands a high level of expertise, especially since you are investing a lumpsum. Also, your portfolio will require constant monitoring and adjustments as well. Investing directly in equities could work for you if you have the time and expertise to handle the same.
Investing through mutual funds
You can also invest in equities through mutual funds that focus on it. But unlike in the case above, a fund manager will decide on the portfolio and manage it. This could be a boon or a curse, depending on the type of investor you are. For instance, if you are an experienced investor who would prefer your strategies, a mutual fund might not work for you. But if you are
alright with taking help, mutual funds could just be the perfect fit for you.
Additionally, investing in mutual funds tends to have less risk as it is closely managed and because of the presence of other types of securities in its portfolio.
ETFs are an option if you want a say in your portfolio and, at the same time, don’t have the time to build and manage a portfolio of your own. ETFs are funds that track an index as it is. Since their portfolio will be the same as the composition of the index they follow, it is only passively managed as well. For instance, an ETF that tracks the Nifty 50 will have all the index components in its portfolio. The job of a fund manager is limited to bringing about changes when there is a change in the index. This makes ETFs bias-free and independent of intervention from a fund manager. Unlike mutual funds, ETF units are highly liquid and tradable on the stock market.
Index funds are the mutual fund alternative to ETFs. They also follow an index or a sector as it is. The difference is that the fund might have other asset classes to mitigate the portfolio’s risk.
What should be your choice?
All the above choices are viable options for lumpsum investments, and the choice should be based on your investment horizon. For instance, if you are conservative, a mutual fund might be better than ETFs or investing directly. This makes understanding your investment goals and risk appetite important before making any investment decisions.
All investments, lumpsum or not, demand thorough market research. This becomes more critical when you invest a lumpsum as more money is at stake. Make sure you talk to your investment advisor before you pin down one investment vehicle.