Investing Rs. 5 Lakhs in Mutual Funds: STP or Lump Sum?
When considering how to invest Rs. 5 lakhs in mutual funds, the choice between lump sum investment, systematic transfer plan (STP), or investing in installments can depend on several factors including your risk appetite and investment horizon. Given your age of 44, it's often recommended to opt for a strategy that balances risk and potential returns. In this article, we will explore the best approach for you.
Approach: STP Plan
Staying with a systematic transfer plan (STP) from a debt fund to a balanced fund remains the safer and more preferable approach for beginners as well as for those with a moderate risk appetite. An STP involves investing a lump sum in a fixed-income or low-risk fund, such as a liquid fund, and then transferring a fixed amount to a growth-oriented fund at regular intervals, usually weekly.
This strategy allows you to capture the average price of the growth-oriented fund over a period, thereby reducing the impact of market volatility. Over the next 18 months, you can gradually transfer your Rs. 5 lakhs to a balanced fund, which is a good choice for moderate risk takers.
Top Balanced Funds to Consider
Here are the top 3 balanced funds to consider for your next 18-month STP plan:
1. Principal Hybrid Equity Fund
One of the standout performing balanced funds over the last 3 years is the Principal Hybrid Equity Fund. It has consistently outperformed its category by a margin of 6 percentage points in 1, 3, and 5-year returns. Launched in 2000, the fund has delivered impressive returns of 11.6% per annum. A systematic investment plan (SIP) of Rs. 5,000 per month started 5 years ago is now worth approximately Rs. 4.61 lakhs.
2. SBI Equity Hybrid Fund
Formerly known as SBI Magnum Balanced Fund, the SBI Equity Hybrid Fund now commands significant assets over 20,000 crores. It maintains a balanced 75-25 equity-debt portfolio, investing primarily in mid-cap stocks to enhance returns. The debt portion includes government securities (G-secs) and corporate bonds for higher income accruals. This fund has outperformed its category by 2-6 percentage points in 1, 3, and 5-year periods, achieving an annualized return of 16.07%. An SIP of Rs. 5,000 per month started 5 years ago amounts to nearly Rs. 4.35 lakhs today.
3. Reliance Equity Hybrid Fund
Focused on large-cap equities with a varying degree of exposure to emerging leaders, the Reliance Equity Hybrid Fund has delivered strong performance. Since its inception in 2005, the fund has outperformed its category by 2-6 percentage points in 1, 3, and 5-year periods, posting a 13.9% annualized return. A similar SIP strategy starting 5 years ago has resulted in a value of approximately Rs. 4.40 lakhs.
Investment Horizon Consideration
If your investment horizon is more than 7 years, large-cap funds might be a more suitable choice. These funds focus on mature and stable companies with a proven track record, but they can offer greater growth potential in the long run.
Top Large Cap Funds to Consider
Here are the top 3 large cap funds for a long-term investment horizon:
1. Axis Bluechip Fund
A model of consistent performance, the Axis Bluechip Fund has outperformed both its benchmark and category in each of the past five years. Focused on large-cap companies with earnings growth, the fund offers a mix of 80-100% investment in large-cap stocks and 0-20% in other stocks. An SIP of Rs. 5,000 per month started 5 years ago is now worth approximately Rs. 4.61 lakhs. Mr. Shreyash Devalkar manages this fund.
2. ICICI Prudential Bluechip Fund
ICICI Prudential Bluechip Fund, till May 2008, managed to outperform both its benchmark and category in each of the five years since its inception. Starting with a strong market timing, the fund typically invests 90% of its assets in large-cap stocks with a small allocation to mid-caps. An SIP worth Rs. 5,000 per month from the last 5 years amounts to nearly Rs. 4.30 lakhs today, with Ms. Sohini Andani as the fund manager.
3. SBI Bluechip Fund
Achieving consistent performance, the SBI Bluechip Fund focuses on the top 100 companies by market capitalization, with flexibility to invest up to 20% in mid-cap stocks. This fund has outperformed the benchmark and category by a significant margin, with a 3-year annualized return of 8.9% and a 5-year return of 18.1%. An SIP of Rs. 5,000 per month started 5 years ago now stands at around Rs. 4.36 lakhs. The fund is managed by experienced Ms. Sohini Andani.
Given the uncertainty of the market and the need to balance risk and returns, we recommend a STP strategy. By diversifying your investments through an STP plan, you can hedge against market volatility and ensure long-term growth. Happy investing!