Mutual funds have long been a popular investment tool for individuals to diversify their portfolios and achieve their financial goals. But when is the right time to invest in mutual funds? It’s a common question with no universally correct answer. The timing of your investment rests heavily on your personal financial circ*mstances, investment goals, risk tolerance, and market conditions.
Raj Khosla, Founder and MD of MyMoneyMantra.com, says, “It is never a bad time to contemplate prospects of savings and investments; it applies to mutual funds too. However, investors, especially newbies in the market, should always try to avoid entering a fund at the peak of its return cycle.”
“This becomes decisive due to two reasons, one being the possibility of a drop in net asset values (NAVs) due to marginal-to-moderate correction in the prices of the underlying assets if they are hovering at their respective all-time highs. And secondly, it destroys the confidence in equities and the purpose of investment as a whole,” Khosla added.
However, one should follow the widely accepted principle in mutual fund investment to start as early as possible. The magic of compounding interest becomes more potent the longer you stay invested. This essentially means that the earlier you invest, the smaller the principal you need to accumulate significant wealth over time.
Nobody can predict the future of any asset, but you can undoubtedly abstain from investing in a fund that has vastly outperformed the benchmark indices. This is neither a thumb rule nor helps shortlist any mutual fund scheme, but it can decrease the chances of bad experiences at the onset of your investment journey.
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Thus, one should always try using a Systematic Investment Plan (SIP) facility. It is an effective strategy for mutual fund investment. Investing a fixed amount regularly avoids the timing risk, ensuring that you keep investing irrespective of market conditions.
Khosla said, “Rupee cost averaging through SIPs works well and truly for new, as well as seasoned investors who don’t have the time to analyse and study the funds or individual assets. As an informed investor, you should always try to understand investments and the functioning of the asset management industry. An au courant investor is always well equipped to rake in good returns against an investor who is not well-informed about the notable holdings in a mutual fund scheme.”
Reviewing mutual funds, on and off, helps you shortlist the most appropriate fund according to your needs, wants, expectations of returns and corresponding risk appetite.
Regular reviews of your existing funds can further help you eliminate funds that have higher exit loads, expense ratios and transaction charges. Higher fees associated with a mutual fund scheme can ultimately ruin your returns in the long run, making your cumulative gains less lucrative than you envisioned at the time of investment.
People who remain sceptical about equities and equity-oriented mutual funds can start with small amounts. Investing in a unit or two of a mutual fund scheme doesn’t bring the risk that can damage your personal finances, provided you’re committed to learning from your mistakes.
“To make yourself comfortable with new assets, you should always try to curtail your risk as much as possible and begin your journey with the lowest possible amount,” said Khosla.
Thus, the best time to invest in mutual funds is when you are financially ready and willing to adhere to a long-term strategy that doesn’t hinge on market timing. But remember, it’s always crucial to do thorough research or seek a financial advisor’s guidance before starting your investing journey.
FAQs
Thus, the best time to invest in mutual funds is when you are financially ready and willing to adhere to a long-term strategy that doesn't hinge on market timing. But remember, it's always crucial to do thorough research or seek a financial advisor's guidance before starting your investing journey.
When should I start investing in mutual funds? ›
There is no better time to start investing. It is very difficult to time the markets and although the markets are due for a correction, it would not be wise to wait further. Also, when it comes to SIPs, there is not much merit in timing the markets. We would suggest you invest in different mutual fund categories.
Is it a good time to invest in mutual funds when market is down? ›
Nobody can predict the market movements. Hence, instead of focusing on timing the market, one should be disciplined and should keep on investing in equity mutual funds irrespective of the market fluctuations. In the long term, these short term fluctuations do not affect your investments.
Is it safe to invest in mutual funds in 2024? ›
As per the Sebi norms, conservative hybrid schemes must invest 75-90% in debt instruments and 10-25% in stocks. These schemes are ideal for investors looking to invest a small part of their corpus in equity to earn some extra returns. Many mutual fund advisors believe that 2024 is going to be the year of hybrid funds.
When should you not invest in mutual funds? ›
Lack of Control. Because mutual funds do all the picking and investing work, they may be inappropriate for investors who want to have complete control over their portfolios and be able to rebalance their holdings on a regular basis.
How much should a beginner invest in mutual funds? ›
You must strive to save at least 30% of your gross income or ₹60,000 every month. To calculate how much amount you should invest in SIPs, we will have to use the standard formula, which is 100 minus your age to be invested in equity through mutual funds.
How fast do mutual funds grow? ›
What Is the Average Mutual Fund Return Over the Last 20 Years? High-performing large-company stock mutual funds have produced returns of up to 12.86% in the last 20 years. Comparatively, the S&P 500 has produced returns of 8.13% since 2002.
What happens to mutual funds if the market crashes? ›
However, during a market crash, stock prices come down. This, in turn, pulls down the performance of mutual funds holding these stocks. Companies, too, face a tough time with their operations taking a hit, and it takes time for stocks to recover. Performance improves only when stocks recover lost ground.
What month is best to buy mutual funds? ›
There is no particular right time to invest in SIP. However, it is always advisable to start as early as possible. Mutual funds generate better returns in the long run. The longer you stay invested the more returns you can earn through capital appreciation and dividends.
How long should you keep money in a mutual fund? ›
Typically, the ideal holding period for an equity mutual fund is considered anywhere between a minimum of 3-5 years. But data shows that only investments in 3% of the units continued for more than 5 years.
(You must convert the rate of return to the monthly figure through dividing by 12). You also have n = 10 years or 120 months. FV = Rs 1,84,170. So, the future value of a SIP investment of Rs 1,000 per month for 10 years at an estimated rate of return of 8% is Rs 1,84,170.
What if I invest $1,000 a month in mutual funds for 20 years? ›
If you invest Rs 1000 for 20 years , if we assume 12 % return , you would get Approx Rs 9.2 lakhs. Invested amount Rs 2.4 Lakh.
What is the safest mutual fund? ›
Money market mutual funds = lowest returns, lowest risk
They are considered one of the safest investments you can make. Money market funds are used by investors who want to protect their retirement savings but still earn some interest — often between 1% and 3% a year. (Learn more about money market funds.)
What is one downside of a mutual fund? ›
Disadvantages include high fees, tax inefficiency, poor trade execution, and the potential for management abuses.
Why people don t invest in mutual funds? ›
As the funds are invested in market instruments, they carry certain stock market risks like volatility, fall in share prices etc., which deters us from investing in mutual funds. As we don't want to lose money, we often let it stagnate in our savings accounts.
Should I invest in mutual funds at 18? ›
Beginning to invest at a young age provides significant advantages, as investments have a longer time to grow and benefit from the power of compounding. Although many brokerages and trading platforms have age restrictions, there are apps specifically geared toward teen investors.
How many years is best to invest in mutual funds? ›
Short-term mutual fund investments are generally meant for tenure of up to 3 years. Long-term mutual fund investments require a minimum tenure of 5 years.
