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?
Mutual funds are professionally managed investment which pools investment from several individuals and institutional investors to purchase capital assets. Fund managers professionally manage mutual funds. This benefits investors as they get the advantage 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 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. 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 in mutual funds.
There are no rules that state mutual fund investors have to be earning. Even students are allowed to invest in mutual funds. 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 markets have hit the 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. Hence, you should not wait to invest and should go ahead and invest whenever you feel like.
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 as a medium of security and to help bridge the barrier of money being an issue to accomplish their personal or 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 one can invest, pause, continue and redeem his/her investments at any time. The investor can choose a date on which they would like their account to get auto debited, and the amount is directly parked into the respective fund or funds chosen.
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 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:
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. In order to incur high returns, the risk appetite needs to become flexible based on which the investor can park money in mutual funds. best mutual funds
b. Market Positioning:
Low-risk investors should consider investing once the market has been 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 given point of 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 to incur 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 80 C of the Income Tax Act, 1961 provides taxpayers with an exemption of up to Rs.1.5 lakh. 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 happens to be the shortest among all Section 80C tax-saving 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.
All in all, there are many reasons why investing in mutual funds can be a wise financial 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.