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.
