MF-Query Board

Is it a good idea to invest a lump sum amount in mutual funds in the current volatile market? If not, could you suggest some liquid funds to park my money in? - Akash Patel

Due to the negative stock market emotions resulting from the Russia-Ukraine conflict, long-term equity mutual fund investors with significant spare funds may be enticed to make a one-time lump sum investment. To some extent, they are correct because when one’s favoured items are on sale, one should take advantage of the opportunity to purchase as much as possible. One-time lump sum investments in mutual funds, according to investing experts, are never a wise idea. It is said that weak markets provide a chance for investors to invest wisely and get a better long-term return.

Even in poor markets, experts advise investing methodically in stocks over the next 6-18 months and holding for the long term. They also advise investors to maintain a diversified portfolio with correct debt and equity mix. This strategy should be preferable if it matches your time horizon and risk appetite. Another school of thought suggests that one must keep on doing regular investing in the form of SIPs which may give better returns in the long term despite the current market levels. As one can see, the markets have been quite volatile since March this year. Hence, it is not advisable to invest a lump sum amount all at once. Otherwise, liquid mutual funds are also a better option to park your money till the market levels return to normalcy and then hold for an extended period of time.

A liquid fund is a type of Debt Fund that invests in money market securities that pay a short-term fixed rate of interest. Treasury bills, commercial papers and other underlying securities are examples of holdings in a liquid fund’s portfolio. The primary goal of liquid funds is to offer investors a high level of liquidity and capital security. Hence, the fund manager invests in high-yield debt securities which have a 91-day maturity, based on the investing goal of the fund. The portfolio’s average maturity will be three months, according to the fund management. 

This makes liquid funds less sensitive to interest rate swings by reducing the sensitivity of fund returns to interest rate movements. The fund’s value does not fluctuate much. In addition to that, the underlying securities’ maturities are matched with the portfolio’s maturity. This helps in the production of better profits. Liquid funds are a great place to park your spare cash. These are low-risk securities that give better payouts than a traditional savings account. Given below are the top five liquid mutual funds as per our research 

I recently opened a PPF account for 15 years. I am 58 years old. Is it a good decision? - Rajesh Kumar

For creating a long-term retirement fund, Public Provident Fund (PPF) is the most sought after financial instrument as it offers added tax benefits and yields moderate returns. It therefore makes for an attractive option for investment. PPF gives a 7.1 per cent assured rate of return and is at par with nominal returns paid by bank fixed deposits (FDs). Further, PPF is a safer instrument than fixed deposits as it is backed by the government as well. As there is no fixed upper age limit for opening a PPF account, any Indian resident can open a PPF account and start investing in the same. It is the most common voluntary tax-saving option and is preferred by every other salaried person for investment. PPF is a sound option for those who desire to take up long-term investments as the lock-in period for PPF is 15 years. However, at the age of 58 years it is not prudent to go for a PPF account since you would not be able to use the invested amount till the age of 73.

You can withdraw money from PPF account post completion of continuous contribution for five years. After six years you can withdraw 50 per cent of the balance. Since the locked-in period is for 15 years, you can stay invested for the entire period and reap better benefits. However, if your investment horizon is 15 years, then investing in a good mix of equity and debt funds will fetch higher risk-adjusted returns. Or, if your motto is tax-saving, investing equally in tax-saving fixed deposits, liquid mutual funds, a mix of equity and debt mutual funds or equity linked savings scheme (ELSS) would make more sense. Investing in PPF is ideally advisable during the accumulation phase (pre-retirement) for corpus accumulation.