In simple words, a lump sum is a one time investment plan. When you pay the entire amount in one go instead of paying it in installments over a period of time, it is called a lump sum payment. It is one of the options of investing in mutual funds along with a systematic investment plan or SIP.

When you think about where to invest your lump sum money you have options like equity funds, debt funds, liquid funds, gold funds and many other fund choices available. Investing lump sum for a longer term has multiple benefits. It is also advised to invest a lump sum especially when the market is rising. The power of compounding will give better results in this case.

Both lump sum and SIP have their own pros and cons. In case of lump sum, since you are investing the whole amount in one go, there is no need to be disciplined about making regular payments.

Lump sum is an ideal option for lazy investors. In addition to that, the power of compounding works brilliantly when you make a lump sum investment because the huge amount of money grows at a faster rate as compared to the small payments of an SIP scheme.

Yes, you can invest your lump sum in liquid funds. Investing your lump sum in liquid funds is especially advisable when you are investing for a short term horizon of below 3 months since their maturity date is 91 days. It will be instantly redeemable and will fetch you much higher returns as compared to a savings bank account.