When is the right time to invest in Mutual Funds?

When is the right time to invest in Mutual FundsWhen is the right time to invest in Mutual Funds?


Stock markets are reaching peak. Fund Managers are investing more in large cap stocks now. You might be postponing about investing in mutual funds. Many of us postpone investments waiting for right time to invest in stock markets. You would have also got doubt that when is the right time to invest in mutual funds? Middle aged persons keep thinking whether they delayed investing in mutual funds? Pre-retirement individuals think whether they can still invest in good mutual fund schemes? In this article we would provide some interest points about when is the right time to invest in mutual funds.

Also Read: Best Equity Mutual Funds to invest in 2018

What are Mutual Fund Schemes?


If you are already familiar with mutual funds, you can skip this section.

Mutual fund schemes are investment vehicles which pool the money of several investors and invest it on their behalf in securities like stocks, bonds, money market instruments etc. These funds are managed by highly qualified professionals who allocate the fund investment and attempt to produce capital gain and income for the fund investors. They charge a small fee for managing the money. Every mutual fund has its own objective and its portfolio is structured and maintained to meet that particular objective mentioned in the prospectus. 

When is the right time to invest in Mutual Funds?


1) Yesterday, today or tomorrow – When is the right time to invest in mutual funds?


If not yesterday, then it is today. The process of wealth creation needs patience and discipline. In short-term investment horizon, the performance of the portfolio can be extreme, but in the long run, the performance normalizes. Irrespective of the time of entry, an investor has to invest in mutual funds for at least 8-10 years to enjoy the benefits. In the long run, equity mutual funds have always outperformed. 

I have many readers on this blog who comment saying they are investing specific SIP amount in mutual funds now and already planned to increase their SIP amounts from next month. What a planning right?

2) Young age, Middle age or Old age – When is the right time to invest in mutual funds?


The investment planning needs to be started at an early age. One can start with small SIP as soon as he begins with his job. Slowly and gradually, the invested fund will become huge. Never stop a running SIP, just increase or decrease the total amount you are investing every year depending on the pay-scale and situation. If you missed investing at young age, don’t worry, start at middle age. It would be useful for your child education or even useful for advance planning for retirement. Even at retirement stage, investing in MIP Mutual Funds would be great idea.

3) SIP or wait for lump sum investment – When is the right time to invest in mutual funds?


The general rule of investing says that invest gradually in equity mutual funds. Investing lumpsum especially when markets are peak is not advisable. Gradual investing works out well when one is doing a SIP from a monthly income. Every month, a fixed income goes into investment, leading to cost averaging and eventual high returns. However during stock market crash or under bearish stock market, one can also go for lumpsum investment in aggressive mutual funds.

4) Invest after marriage or after kids are born – When is the right time to invest in mutual funds?


If you are looking to achieve long-term financial goals for your children like child marriage or education, there is no right or wrong time invest in mutual funds. Sooner you start, better it is for you and your child’s future. Investment for your children is a crucial step that should be taken after studying carefully market risks, benefits, and all other scenarios of various options available in the market.  You can look for best mutual funds for child education in India.

5) Bull Run or Bearish market – When is the right time to invest in mutual funds?


If you are investing via SIP, there is no need to worry as the fund managers are experienced players in this field and they already corporate in the consequences of a bear market. If you are investing in a lump sum, you can wait for stock markets crash or bearish markets. The golden rule of investing in mutual funds is do not panic to market volatility. One has to be systematic in investing. Most of the people tend to be impulsive in the purchase of mutual funds. They buy whenever they have the money or there is an NFO. Then, when a down-market arrives, they simply ignore it giving the reason of lack of funds. 

6) Low NAV – High NAV of Mutual Fund – When is the right time to invest in mutual funds?


Many investors think that it is better to buy mutual funds with lower NAV as it allows you to buy more units of mutual funds, but it is a big myth. The amount of your investment remaining unchanged, between two funds with identical portfolio, a low NAV would mean a higher number of units held and high NAV would mean a lower number of units held. But, under both the situations, the product of the number of units and the applicable NAV (i.e. the value of your investment) would be identical.  Therefore, it is the stocks in the portfolio that determines the returns from a fund, not the NAV.

7) Investing in NFO or Invest in Existing Mutual Fund Scheme – When is the right time to invest in mutual funds?


Investors often view NFO as an IPO. But, there exist a difference between the two. The price of a stock is based on the demand and supply of it whereas the mutual fund units have an unlimited supply. There is no impact of the demand on NAV. The units are created as and when required. NFOs are at times launched to create a buzz in the market and attract new investors but, every NFO is not successful. An investor has to be very cautious while investing in NFO. An existing fund has a proven track record. It has passed various market cycles and it would be better equipped to take advantage of the market. Let the new entrants prove themselves on the ups and downs of market and you have numerous existing funds to put your hard-earned money. Hence investing in a unique NFO is okay, else one should invest in existing mutual fund schemes.

8) Financial Advisor adviced you or Self Planning – When is the right time to invest in mutual funds?


Have you got a call from financial advisor asking you invest in mutual funds and you proceeded for investing in funds? Why someone has to push you about your investments. One should plan themselves and seek for advice if required and invest regularly. If you got bonus or variable pay or excess money lying, there should be self motivation to invest in mutual funds.

Next time, don’t ask question when to invest in mutual funds !!!

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Suresh

When is the right time to invest in Mutual Funds

13 comments

  • Mridul

    Hi, By reading this article I have decided to continue my SIPs. I want to take rise and earn higher return so selected the following 5 funds-

    Principal Balance Fund Rs. 2000

    Aditya Birla Pure Value Fund Rs. 1000

    L & T Emerging bussiness fund Rs. 1000

    Motilal Oswal Long Term Equity Fund Rs. 1000

    HDFC Small Cap Fund Rs. 1000

    Request your feedback & comments.

    • Hi Mridul, you can make the following changes. Go for HDFC balanced fund or ICICI balanced fund in balanced fund category. In smallcap, go for Franklin India smaller cos fund or DSP BR Microcap fund or Reliance smallcap fund

      • Mridul

        Thanks for the comments Suresh Ji. But I observed that DSP BR Microcap and Reliance Smallcap funds are discontinued. Any more suggestions?

  • Sivaraman

    Informative article sir…

    Thanks

    Sivaraman V.K

     

  • Sri Ganesh G.

    Hi Suresh,

    Can you tell me how to switch from one fund to another. I have around 1 Lakh in UTI Opportunities fund in which I am doing a SIP, and I would like to shift to another fund because this fund is not performing up to the mark. So should I redeem all the units at once and invest the total amount at once in the other mutual fund and then continue the SIP there or is there any other better way.

    • You can login to your mutual fund account and select STP (generally SIP / STP / SWP options would be at one place). You can select STP and select no. of units or amount and confirm. Thats all you need to it

      • Sri Ganesh G.

        Thank you for your reply. But my doubt was, for example, if I want to stop investing in UTI Opportunities and want to invest that amount in, let's say, ICICI Prudential Focused Bluechip, should I redeem all the amount at once in the other fund and then continue the SIP? Would that be advantageous?  Actually, it would be very good if you can write a small article about what to do when we want to shift from one fund to another (not of the same fund house), how should we go about investing? If we invest the amount all at once, would we realize the benefit of SIP?

  • ARUNKUMAR P G

    Hi Suresh, How are you 🙂

    I have a doubt on the "High NAV and low NAV mutual fund" section

    Lets take an example that i I invest Rs.1000 and i get 100 unit of a mutual fund with nav 10 on feb1

    On mar 1, for the same Rs.1000 and i get 200 unit of the same mutual fund with nav 5

     

    After 10 years, if the nav is 50 , and  if I sell the 100  units i bought on feb1, i will get Rs.5000. ,If i sell the 200  units i bought on mar1, i will get Rs.10000.  So number of units matters a lot in the return profit right?..its always good and profitable if you buy more units with same price right?

     

    Please correct me if my understanding is wrong.

     

    Thanks,

    Arun

     

     

     

     

     

     

  • A. VISWANATHAN

    Dear Shri Sureshji

          Your posting on "When is the right time to invest in MFs" is really very useful and informative.

          Every line is valuable.  Especially the last line, that is –  -Next time don't ask questions, when to invest in MF –  superb.

         Thank  you once again.

          Namaskar.

    A.VISWANATHAN

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