Markets have corrected, it’s the best time to invest in mutual funds and save 46,800 in taxes a year

The COVID-19 outbreak which was first reported in December 2019 has now turned out to be a pandemic. This has halted trade activities across the world and has resulted in stock markets plummeting record levels. They have now hit their multi-year lows. Amidst the coronavirus scare, here are the best funds to invest:

1. Index Funds

Index mutual funds are a type of equity funds that track and emulate the performance of a popular stock market index such as BSE Sensex or NSE Nifty. The asset allocation of an index fund would be the same as that of its underlying index. The returns provided by an index fund would be almost the same as that of the index being tracked.

Index funds are now a great investment option as the stock market indices have fallen record level to touch their multi-year lows, and the investors can pick index fund units at a much lower price. Indices consist of stocks of reputed companies across all sectors. Once the Coronavirus is contained, the indices will start picking up as the companies will get back to their full production. Therefore, investors will get excellent returns due to the benefit of scale that the indices are capable of providing in the long run.

This is not the first that the indices have collapsed the way they have. Back in the year 2008, the Indian indices had fallen significantly due to the subprime mortgage crisis. After that, the Indian indices have not seen another significant fall until now. The following graph shows the performance of BSE Sensex over the last thirty years:

sensex oct
Source: Google

The BSE Sensex fell massively in late 2008 due to the global recession induced by the subprime mortgage crisis. Post that, the index performed overwhelmingly and did not record another substantial drop in its value until now. Furthermore, the BSE Sensex and other Indian indices are expected to gain in the coming days. Therefore, investing in index funds is a great option in the long run.

2. Overnight Funds

If you are someone who is risk-averse with a short-investment horizon, then you may consider investing in overnight mutual funds. These are opened-ended debt funds that invest predominantly in the securities and assets that mature over just one day. As these funds invest in securities maturing in a matter of a few hours to days, they are not exposed to substantial levels of risk.

At the beginning of a business day, the fund manager would be holding the investments in cash and will go onto purchase assets that attain maturity by the start of the next business day. The cycle continues, and therefore there is no risk of being exposed to high levels of risk.

Investors can enter and exit overnight funds during the trading hours. This makes overnight mutual funds a great option to park your surplus funds. As these are highly liquid in nature, investments can be redeemed in almost no time when there is an emergency. Therefore, overnight funds are an excellent investment option at times of uncertainty and crisis in the market.

3. Equity Funds Through SIP

Equity mutual funds are those mutual funds that invest in shares of companies across market capitalisation. The net asset value (NAV) of equity funds are now down due to a fall in the market which is induced by the spread of Coronavirus and Yes Bank crisis to some extent. The NAV of several funds is now at multi-year lows. This makes it an ideal time to purchase more fund units through systematic investment plan (SIP) and stay invested over the long term (5 years or more) to enjoy the benefit of scale.

By investing through SIP, you get the benefit of rupee cost averaging. When the markets are down (which currently is the case), you end up buying more fund units. When the markets start shooting up, you will buy fewer units. Therefore, by investing in equity funds through SIP, you would benefit from both up and down markets in the long run.

Equity mutual funds are an excellent option for long-term financial planning, as they are capable of providing high returns. However, picking good fund plans needs market knowledge. If you are not able to identify the best options, then you may consult a financial advisor who will be able to help you invest in suitable options.

4. Conclusion

The markets may be down today, but they will not remain the same for a long time. The current market situation is induced by a pandemic and will not prevail. The markets are expected to pick up once the Coronavirus is contained in the coming days. Now is the right time to make investments in equity-linked options as the stock prices of many shares have hit their multi-year lows. This will prove to be extremely beneficial in the long run. Get started with your investment now!

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