The year 2019 saw unprecedented growth in the mutual fund industry. With Assets Under Management (AUM) reaching 27 trillion from 8.3 trillion in the year 2013, Investors clearly showed their preference for mutual funds to meet their future financial requirements and wealth creation goals.
Investment in Mutual Funds is quite popular among people owing to their flexibility, and availability in diverse fund categories that matches the financial goals, risk appetite, and income pattern of the investors.
In such a scenario, answering the captioned question is quite tricky as there is no specific time that is perfect to invest in mutual funds. Any time, any day is equally good to start an investment in Mutual funds.
What is the best time to Invest in Mutual Funds?
Investors are curious to unlock the secret of the perfect time to buy Mutual Funds and the ideal fund to invest money. As per Financial Investment Advisors, there is no perfect time to start investing in mutual funds. They can be started any day by anyone who is keen to invest. Students, housewives, retired people, pensioners, working professionals, senior citizens, etc are free to invest in Mutual Funds of their choice as per their risk appetite and future financial goal.
However, relatively speaking, buying Mutual Funds when the NAV is low, as compared to a high NAV, is better as it leads to wealth accumulation with higher returns in the long term.
There are three main reasons that propel investors towards mutual fund investments. These includes:
- Markets being at the lowest phase
- Bonds alone give the highest yield
- Downfall or Slump in the development of Real estate sector
Since finding such a scenario is extremely rare in real life, it is similarly not possible to define a perfect time for mutual fund investment.
Investment in mutual funds can be done at any time without waiting for the economy to reach a specific state or level.
If however, we attempt to time the market while selecting the appropriate funds, there are certain factors that might prove beneficial.
1. Timing the Investment as per Financial Goal
A valuable future financial goal leads to a conservative investment through the Systematic Investment Plan (SIP) mode. If the investor is aiming for capital growth, and the market is low, lump-sum investment is the best choice or a Mutual Fund SIP with growth option. For an investor who is looking for less risk, SIP in Debt Hybrid funds works best.
2. Time Horizon While Investing
In the case of a long term time horizon, mutual fund SIP investment (large-cap and mid-cap mutual funds) proves beneficial as the volatility of the market is overcome by the averaging factor of the SIP. Investment in liquid funds proves helpful for investors having liquidity requirements in the short run.
3. Timing a Lump sum Investment when the market is low
When investing lump sum funds in mutual funds, timing the investment when the market is low leads to a greater number of units at lower NAV and thus better returns later when the market grows.
4. Timing the investment in tax Saving Funds
Tax saving mutual funds serve the same purpose as any other tax saving instrument such as TAX saver Fixed deposit or Life Insurance Policy. An investment in ELSS (Equity Linked Mutual Fund) through SIP or lump sum mode gives a tax benefit under section 80C of the Income Tax Act 1961. The ELSS fund has a lock-in period of 3 years. SIP investment in the ELSS is generally preferred to gain from the market fluctuations.
5. Timing the Systematic Transfer Plan (STP)
Systematic Transfer Plan (STP) works very well for investors having a large amount of money to invest when the markets are high. Under STP, the investor who is still undecided about the sector or type of funds for investment can invest the lump sum amount in a liquid fund and later transfer the funds through STP to the selected equity, debt, or balanced funds.
It is thus quite evident that waiting for the perfect time to invest in mutual funds is like chasing the horizon. The practical and doable, part is to start investing after carefully analyzing the risk appetite, Return on Investment, Time horizon, Financial goals, and Tax benefit and earn good returns.
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