Which is the Best Time to Invest in Mutual Funds?

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There is no right time as such when it comes to investing in mutual funds. You have to invest in mutual funds as and when you feel like. Any day is the best time to invest in mutual funds. Remember, you need to invest as per your financial goals and risk tolerance. We have covered the following in this article:

What are Mutual Funds

Mutual funds are professionally managed investment which pools investment from several individuals and institutional investors with similar investment objectives. The pooled investment is invested in purchasing capital assets. Professionals managing mutual funds are called fund managers. This benefits investors as they get the advantage of scale as well as returns, at a lower cost. Moreover, mutual funds invest across various instruments and hence offer the benefit of diversification to the investors. Mutual fund investments are on the rise over the last decade. India is moving from the traditional investment options towards mutual funds for accomplishing their financial goals. However, some investors are not sure as to when to invest in mutual funds.

When is the Best Time to Invest in Mutual Funds

Mutual funds have gained immense popularity among investors due to its flexibility. There has been growing acceptance to invest in mutual funds due to the availability of several fund categories that suit investors across all risk profiles. Today, investors are not only curious about the right fund to invest but also about the right time to invest in mutual funds. There are no rules that state mutual fund investors have to be earning individuals. Even students can invest in mutual funds. There is no best time as such for investing in mutual funds. Individuals can make investments in mutual funds as and when they wish. But it is always better to catch the funds at a lower NAV rather than higher price. It will not only maximise your returns but also lead to higher wealth accumulation. The following are three scenarios that are suitable to make mutual fund investments: a. Markets have hit the rock-bottom b. Bond yields are the highest c. Development in the realty sectors has plunged Any or all of the above represents an ideal scenario, but in reality, this time never comes, and you are not sure if the current scenario matches the ones above. It’s practically impossible to define such a timeline. Hence, you should not wait and should go-ahead to invest in mutual funds whenever you feel you should do so.

Which is the Best Mode to Invest in Mutual Funds

Each day, the number of investors investing in mutual funds is rising. From students to employed to retired, everyone has started investing in mutual funds to help bridge the barrier of money being an issue to accomplish their personal and career goals. In a SIP model, you purchase more units at lower NAV and lesser units at a higher NAV when the market rises. Hence, the average cost per unit declines over a period; this is popularly known as Rupee Cost Averaging. For a long-term investor, SIPs make for a handy tool of risk management.

Which Factors Determine 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 earn good returns. However, there is a second step in this process – finding out the suitable funds, and this depends on several factors, which include your personal goals as well. These are:

  • Risk Appetite: An investor’s investment amount and duration depend on his or her risk profile. PPFs and FDs are risk-free but deliver minimum or slow returns. High returns investments are generally associated with high risk.
  • Market Positioning: Risk-averse investors should consider investing once the market gets corrected, as, after the fall, the markets try to recover the losses incurred. Investors who are willing to face high risk can invest at any time, as they will experience all market cycles and corrections while enjoying high returns.
  • Return on Investment: An investor willing to take high risks for high returns can ideally consider investing in equity. If investors have significant corpus lying idle in their savings account, then they can invest in mutual funds in a lump sum. If they are willing to invest a fixed amount at regular intervals, then they can invest in SIPs. For both of these, the investor will have to stay invested for at least 3-5 years to enjoy high returns.
  • Tax Saving Under Section 80C: Section 80C of the Income Tax Act, 1961 provides taxpayers with tax deductions of up to Rs 1.5 lakh a year. With the proper use of this provision, fund houses provide tax saving options under the ELSS scheme, which comes in with a lock-in period of three years, which is the shortest among all Section 80C investment options.
  • Long-term or Short-term Horizon: Any investor, while assessing their risk profile and financial goals, should keep in mind the investment horizon before investing in a particular fund. The investment horizons could be either long-term or short-term, depending on the risk-return potential. Long-term investments deliver higher returns when compared to short-term investments, as the risk is high. Whereas short-term investments carry low risk, low returns philosophy. In the short-term, one can invest in liquid or ultra short-term funds. In the case of long-term investments, the investor can invest in lump sum or SIP. To conclude, there are many reasons why investing in mutual funds is a wise investment decision. With the right advisory, choice, and guidance on selection, performance and returns of funds, one can invest irrespective of the time of investment.

Frequently Asked Questions

Which are the best mutual funds to invest in India?

You may consider picking the best mutual fund depending on your investment objectives and risk tolerance. You could check the track record of the mutual fund house and the fund manager before investing in the mutual fund. However, you may invest in the mutual fund only if you are comfortable with the investment style of the fund manager.

You must check the expense ratio before putting your money in the mutual fund. You may find the best mutual funds having a lower expense ratio. However, you must check other important parameters before investing in the mutual fund. You would find the best mutual funds have a lower turnover ratio for the portfolio. You may avoid mutual funds where the fund manager churns the portfolio many times.

You may pick the best mutual funds depending on your investment horizon. You could invest in equity funds only if you have an investment horizon of three years or more. You may invest in debt funds for a shorter time horizon of under three years. Invest in balanced or hybrid funds only if you have an investment horizon of three to five years.

You may measure the performance of mutual funds against a benchmark index to select the best mutual funds. For example, you may check the performance of a large-cap fund against the Nifty 50. Compare the performance of the mutual fund against its peers and also take a look at the consistency of performance. Best mutual funds have a consistent track record of outperforming peers and the benchmark index over five years or more.

You must choose the best mutual fund house with large assets under management (AUM). The fund house may be able to bear sudden redemption pressure if it has large assets under management.

How to find the best performing mutual funds in India?

Best performing equity fund:
An equity mutual fund may be the best performer in its category if it consistently beats the benchmark index over some time. The best performing equity fund has a lower expense ratio as compared to peers. You may find the best performing mutual funds doing well across market cycles.

You must check the alpha of the equity fund to identify the best performing mutual fund. It shows the excess return generated by the equity fund above the benchmark index. You can pick the equity fund with a high alpha as compared to the peers.

You must take a look at the beta of the equity fund. It gives you an idea of the volatility of the fund as compared to the benchmark index. An equity fund with a beta less than one is less volatile as compared to a fund with a beta more than one.

Take a look at standard deviation which gives you an idea of the volatility of the equity fund. You may find an equity fund with a higher standard deviation to be riskier as compared to a fund with lower standard deviation. You may pick the best performing equity fund based on risk-adjusted returns. Check the Sharpe’s ratio of the equity fund and opt for an equity mutual fund scheme with a higher Sharpe’s ratio which signifies a higher risk-adjusted return.

Best performing debt fund:
You may consider picking the best debt funds based on the credit quality of the bonds in the portfolio. Credit rating agencies would assign a credit rating to bond-issuers based on their ability to repay the principal and interest amounts. You must invest in debt funds with AAA-rated bonds in the portfolio.

It is a safer investment as compared to bonds of a lower rating which may offer a higher interest rate. However, they could default on both principal and interest payments.

You may select the best performing debt fund based on the expense ratio. You must not pick a debt fund with a high expense ratio. Best debt funds have an excellent track record of performance over three to five years. You may select the best debt fund where the average maturity period matches your investment horizon.

Best performing hybrid fund:
You could pick the best performing hybrid fund with a good track record of performance over three to five years. Select a hybrid fund which has beaten the benchmark index and peers over some time.

You may check the track record of the fund house and the investment style of the fund manager before picking the best performing hybrid fund. Pick a fund house with huge assets under management which can bear the sudden redemption pressure of big investors.

Select the best performing hybrid fund with a low expense ratio. A high expense ratio may eat up the return from the fund. The best performing hybrid funds must match your investment objectives and risk tolerance. Take a look at the portfolio of conservative hybrid funds. It gives you an idea on the credit quality of bonds in the portfolio.

Which is the best way to buy mutual funds in India?

You may buy mutual funds through cleartax invest. Follow these steps to invest in mutual funds.

  • You must log on to cleartax invest
  • You then select the mutual fund house from the list of fund houses
  • Select the mutual fund scheme based on your investment objectives and risk tolerance and click on Invest now
  • You must select the amount you plan to invest in the mutual fund scheme and the mode as either One Time or Monthly SIP.
  • You must fill up the requisite details such as name, email ID, mobile number and complete the transaction.

Complete your KYC (Know Your Customer) before investing in a mutual fund scheme. You must visit the website of a KRA (KYC Registration Agency) and create your account. You will have to fill the KYC registration form with details such as your name, email ID, mobile number and so on.

Upload copies of your self-attested identity proof such as PAN Card and address proof such as passport, driving license or Voter ID along with a passport size photograph at the KYC Registration Agency. You may complete the IPV (In-Person Verification) through a video call to verify your documents against the originals and also your signature.

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