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There is no right time as such when it comes to investing in mutual funds. Investments in mutual funds 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. We have covered the following in this article:

1. What are Mutual Funds?

Mutual funds are professionally managed investment which pools investment from several individuals and institutional investors with similar investment objectives. 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 offers 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.

2. 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. 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.

3. 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 people, everyone has started investing in mutual funds to help bridge the barrier of money being an issue to accomplish their personal and career goals.

If you are new to the investment world, then to give yourself the confidence of investing, to begin with, you can start with SIPs as you can initiate, pause, continue and redeem investments at any time (depending on the lock-in period). Investors can choose a date on which they like their bank account to get auto debited, and the amount goes in the funds selected.

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; this is popularly 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 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:

a. Risk Appetite:
An investor’s investment amount and duration depend on his or her risk profile. While PPFs and FDs are risks -free, but deliver minimum or slow returns. High returns investments are generally associated with high risk.
b. 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 correction while enjoying high returns.
c. 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, 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.
d. 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 right 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.
e. 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.

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