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How to invest a lump sum amount when the stock market is at an all-time high?

Posted on 10 Dec 2023
Author: Sayan Sircar

Tags: Market Movements

7 mins read
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This article shows how an investor should invest a lump sum amount in the stock market when the market has reached an all time high.

How to invest a lump sum amount when the stock market is at an all-time high?

This article is a part of our detailed article series on what to do when stock markets reach a lifetime high. Ensure you have read the other parts here:

Nifty above 21000: what should you do with your equity SIPs? Start, stop or continue?

As the market keeps rising to new all-time high figures, how much returns should equity investors expect from their investments running in SIP form.

Nifty above 20000: what should you do with your equity SIPs? Start, stop or continue?

As the market keeps rising to new all-time high figures, how much returns should equity investors expect from their investments running in SIP form.

Should you stop your SIPs now that the market has reached an all-time high?

The article shows you what has happened in the past when the stock market hit an all-time high and what the investor should do next.

The stock market has reached an all-time high. Should you buy or sell?

This article shows a way to decide what to do when stock markets reach all-time or lifetime highs. Should investors buy more or sell to book profits?

📚 Topics covered:

Investors worry due to all-time high
Weekly SIP vs lump sum
Monthly SIP vs lump sum
Lump sum or SIP which is better at all-time-high
When should SIP be preferred over lump sum

Investors worry due to all-time high

One of the biggest worries that investors have about the stock market reaching an all-time-high is the fear that the market will fall soon. We have looked at average short-term (3-month and 6-month) returns in the Nifty 50 just after the ATH. The results are shown below.

Short-term Return from All-time-high

You can find more details here: Should you stop your SIPs now that the market has reached an all-time high?.

In this article, we will cover the case where the investor has a large sum of money, as a lump sum amount, that needs to be invested and the investor has two options:

invest at one go as a lump sum
split as a SIP over a number of weeks or months

Here we are using the market data of the Nifty 50 price index from 1993 onwards. Every time the market has reached an all-time-high, we will either invest an amount of ₹10 lakhs as a lump sum or split that weekly or monthly over a period up to 2 years. The amount which is not yet invested is either held as an FD or in a money market or similar debt mutual fund and an SWP is run over this period. The systematic instruction takes out emotion from the equation.

We will examine the result of the investment after 10 years.

Weekly SIP vs lump sum

Here we are comparing a weekly SIP into a Nifty 50 index fund over a period or 4 to 104 weeks (2 years) vs. a single lump sum investment when the market is at an all-time-high. We examine which option gave higher returns after 10 years. The chart shows the percentage of cases where the lump sum gave higher returns. The amount not yet invested is held at 5%.

Percentage cases of more in Lump sum vs weekly SIP after all time high

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Monthly SIP vs lump sum

Here we are comparing a monthly SIP into a Nifty 50 index fund over a period or 3 to 24 months (2 years) vs. a single lump sum investment when the market is at an all-time-high. We examine which option gave higher returns after 10 years. The chart shows the percentage of cases where the lump sum gave higher returns. The amount not yet invested is held at 5%.

Percentage cases of more in Lump sum vs monthly SIP after all time high

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Lump sum or SIP which is better at all-time-high

In finance, any trend above 50% probability generally indicates a result that can be reused. For example, in all of the cases examined, the average lump sum investment has beaten the one in SIP mode and that is the right choice to make. Intuitively we need to keep in mind that stock markets go up in general. Splitting the lump sum over a period of time means that later instalments are invested at progressively higher levels.

Have vs Needs Framework

Also, the entire amount that you have may not be required to be invested in equity. Amounts due for spending in the next few years should not be in equity at all. We have discussed this point in detail here: How to invest a lump sum amount for your goals?.

The generic case, where the analysis is done over every time period, not just all-time-high, is here: Lumpsum vs. SIP: Here’s the Truth on the Winning Strategy For Mutual Fund Investors.

When should SIP be preferred over lump sum

Even after all of this analysis, there are a few behavioural reasons where and SIP is preferable:

when the investor has limited experience with the equity markets
when the quantum of lump sum is very high relative to total investment
there is an irrational amount of fear in the investor’s mind that the market will fall

In such cases, a method of choosing of splitting the amount into a small number of weeks or months up to 2 years may be chosen. It is important to keep in mind that irrespective of the period over which the SIP will run, once the whole amount is invested, it will be fully exposed to the ups and downs of the stock market. If the market falls 40% the month after you finished your SIP, the fact to used a SIP to reach this point will not prevent your portfolio from losing value.

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