A mutual fund is an investment where the large, medium and small investors money is pooled in and professionally managed and invested by fund managers. This benefits investors as they can get the advantages of scale as well as returns from a professionally managed portfolio at a fraction of the cost of what it would otherwise.
Between 2014 to 2016, the cash inflow in ELSS Mutual Funds increased from Rs. ₹2908 crore to ₹6413 crore. The country is starting to look towards Mutual Funds as a means of investment and move beyond traditional means of investing. However, every investor always has a common doubt – should I invest money in the Mutual Fund sector now? Finding out what is the best time to buy more fund units can be hard, but it also crucial to your final earnings.
2. So, what is the best time to invest in funds?
You can invest in Mutual Funds anytime you wish to, but the following three scenarios offer the best chances for rapid growth and high returns. Always make sure you buy your funds when:
a. The market is rock bottom
b. Bond yields are the highest, and/or
c. Real estate and infrastructure are at the lowest point
Any and all of the above represent an ideal scenario, but in reality, this time never comes. In fact, it’s practically impossible to define such a timeline. The best time to invest in mutual funds is, therefore, now!
3. What is the best mode of investment in Mutual Funds?
The mutual fund industry assets have accrued over the years and the sector is on a boom with a growth of 37% as compared to last fiscal. From Rs 13.6 trillion on March 31, 2016, the AUM (Assets Under Management) value stood at Rs 18.6 trillion on 31 March 2017. The net inflow of funds (sales minus redemptions) was a whopping (appx) Rs 3.5 lakh crore during the fiscal year 2016-17.
This proves that more and more Indians are choosing to invest in Mutual Funds than ever before. And if you, too, would like to do that then a SIP (systematic investment plan) is the best way to invest in any market. A SIP plan ensures that one does not need to time the market and think about the bull or bear period of the market.
Since a SIP investment happens in each of the months irrespective of the market condition, the investor benefits both from an upmarket as well as a down market. In a SIP model investors (fund managers) purchase more units at lower NAV when markets fall, and lesser units at higher NAV when the market rises. Hence, the average cost per unit declines over a period of time. For a long-term investor, SIPs make for a very effective tool of risk management.
4. What are the factors that decide the best time to invest in Mutual Funds?
We now know that instead of waiting for an ideal time to invest, it is better to start today and ensure that you follow the basics to get good returns. However, there is a second step in this process – finding out which funds you wish to invest in. This depends on several factors which include your personal choices as well. These are:
a. Risk Appetite: Certain mutual funds are loss free for investors who want safe returns. If you already have investments in other market tools like PPF, FD etc. and want quick returns, you can invest in high-risk, high-return finds which will help you maximize your gains.
b. Market positioning: For low-risk investors when the market correction takes place (10-15%) it may be a good time to invest but for investors who are willing to take risk investment can be made any time in for lump sum or SIP.
c. Return on Investment: For high return investors who look out for mutual funds which are majority equity driven may invest as SIP at any given point in time and don’t wait for the market to fall. They choose certain mutual funds which give a high return over the long-term (more than 5 years).
d. Tax Saving Under section 80C: Many funds offer schemes managed with the specific goal of tax-efficiency like ELSS schemes. Investors looking out for tax saving may invest under ELSS schemes throughout the year as SIP or at the year-end or the beginning, in a lump sum amount to claim the tax deduction.
e. Long-term or Short-term horizon: Simply put your investment horizon is the time period for which you are willing to stay invested. Long-term investments get high returns, but you need to be patient for this! In contrast, short-term investments can get you quick returns but they may not be as high as the alternative. If the investment horizon is of 5 years or more then any time is a right time to invest your lump sum amount in equity mutual funds for a return better than most of the safe investment (For Example – Fixed deposits, Public Provident fund (PPFs) and other bonds)
Overall, there are many reasons why investing in mutual funds makes a good return percent. A little bit of due diligence and survey can provide a good return and a safe investment for an investor. So investing in mutual funds is all about the correct fund with systematic investments irrespective of the time that an investor is investing.