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There is no right time as such when it comes to making investments. Investments should be made at the earliest. Any day is the best time to invest in mutual funds. Remember, you need to invest as per your financial goals and risk tolerance. In this article, we cover the following topics:

1. What are Mutual Funds?

A mutual fund is formed when money pooled from several investors is used to purchase capital assets. Fund managers professionally manage a pooled investment. This benefits investors as they 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.

The cash inflow towards mutual funds has increased considerably over the last decade. The country is moving from the traditional investment options towards mutual funds for accomplishing their financial goals. However, some investors are not sure of when to invest in mutual funds.

2. When is the Best Time to Invest in Mutual Funds?

Mutual funds have gained immense popularity among investors. Owing to the availability of several fund categories that suit investors across risk profile, there has been growing acceptance to invest in these funds. They are not only curious about the right way to invest but also about the right time to invest.
You can invest in mutual funds as soon as you start your professional career. There is no such thing as the best time, and you can invest as and when you wish. But it is always better to catch the funds at a lower NAV rather than paying a 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 start investing in mutual funds:

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 or all of the above represents an ideal scenario, but in reality, this time never comes. It’s practically impossible to define such a timeline. The best time to invest in mutual funds is, therefore, now!

3. Which is the Best Mode to Invest in Mutual Funds?

Each day, more and more Indians are investing in mutual funds. And if you, too, would like to do that then a systematic investment plan (SIP) is the best way to invest in any market. SIPs ensure that one does not need to time the market and think about the bull or bear period of the market.

When an investor initiates a monthly SIP in a mutual fund scheme irrespective of the market condition, he/she benefits from both an upmarket as well as a down market. In a SIP model, the fund managers 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 of time. This is known as Rupee Cost Averaging. For a long-term investor, SIPs make for a handy tool of risk management.

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

a. Risk Appetite:

Some mutual funds are risk-free for investors who want safe returns. If you already have investments in other instruments such as PPF and FD and want quick returns, then you can invest in high-risk, high-return funds, which will help you optimise 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 a risk, an investment can be made any time in a lump sum or SIP.

c. Return on Investment:

For high return-seeking, investors who look out for equity-driven mutual funds may initiate 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 five years).

d. Tax Saving Under Section 80C:

Many funds offer schemes that are managed with the specific goal of tax-efficiency such as ELSS schemes. Investors looking out for tax saving may invest in ELSS schemes via SIP or a lump sum amount to claim the tax deduction.

e. Long-term or Short-term Horizon:

Your investment horizon is the 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 five 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. A little bit of due diligence and research can provide a good return and a safe investment for an investor. Mutual fund investment is all about choosing the right fund with SIP, irrespective of the time at which an investor is investing.

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