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Best Time to Invest Mutual Funds

What is the Right Time to Invest in Mutual Funds?

Q: How does the 30-day rule for mutual funds work?

The 30-day or wash sale rule for mutual funds states that, if you want to sell your security at a loss and purchase the same or similar security within 30 days before or after the sale, you won't be able to consider the loss in the same year tax return.

Q: Where should I invest in long term – equity or debt funds?

When you’re talking about long term investment, equity should work. Otherwise, if the goal is capital protection, irrespective of the term of investment, go with debt funds.

Q: Is it better to invest in equity funds when the market is low?

Yes, but it is not possible to predict the market situation precisely most of the times. If you are investing for a long term, minor market fluctuations won't affect your returns. However, if there’s an exceptional situation, like the 2020 pandemic where the market stooped drastically low, things can turn different very quickly.

Q: Should I switch to a lump sum MF investment from SIP?

Investing through SIP is preferred by individuals as it inculcates discipline and takes advantage of rupee cost averaging. But, if you have funds lying at home, it is better to invest them. Also, there are some debt funds for which SIP is not an ideal investment mode.

Q: For how long should I stay invested in a mutual fund?

Whenever your investment objective is to multiply your wealth to gain the maximum returns, always remember – the longer the better. Catering to the concept of power of compounding, , the more time you give your investments to multiply, the higher will be the amount. Thus, if not required, keep your mutual fund investments active for as long as you can, barring any emergencies.

Mutual funds have gained popularity among Indian investors in the last few years due to its relatively higher rate of returns than other investment avenues. However, there are so many nitty-gritties of th

Written by

Abhishek Chakravarti

BFSI Writer

Abhishek is a financial writer with over 6 years of experience in the BFSI sector. Prior to his current stint with Axis Max Life Insurance, he has worked with leading fintech startups. He specializes in writing about taxation and various investment products like ULIPs, retirement plans, guaranteed investment plans, mutual funds etc.

Reviewed by

Sahil Rawal

BFSI Expert

Sahil Rawal is a digital & brand management specialist with over 10 years of experience in Financial Services Industry. Life insurance professional with expertise in digital marketing strategy, website content marketing and brand communication designed to increase brand awareness, drive engagement & sales.

What are Mutual Funds?

Before we dive into the big question of when to invest in mutual funds, it’s best to understand what mutual funds are. A mutual fund is an investment instrument which is managed by professionals. In each mutual fund, investment money of various investors, with similar investment goals, is pooled in and then this money is further invested in purchasing securities such as equities and bonds. The professionals who manage these mutual funds are called as fund managers. Investors get the benefit of diverse investment via mutual fund and gain returns from such diversity without actually having to step into the securities market, especially if they don’t have the skillset to combat the challenges the market throws.

The returns, as and when gained, are distributed among the investors of the fund proportional to the investment they’ve made. Now, let’s see what is the best time for mutual fund investment in the following sections.

When is the Right Time for Mutual Fund Investment?

The best part of investing in mutual funds is that there aren’t many restrictions. You don't have to be a working individual. You can be a student and still start investing in mutual funds. So, there is no set rule that lets you know the right time to start investing in mutual funds. According to many experienced investors, a bear market is the ideal time to invest, especially for equity mutual funds. However, the identification of a bear market entirely depends on the expertise of a fund manager.

However, there are three ideal scenarios that you can consider for mutual fund investment:

● The market is at its lowest

● Bonds are performing at their best

● Realty sector development has dropped significantly

But, it is difficult for such scenarios to occur; and even if it does, it is not easy to identify the right time to invest. Hence, it is better not to wait unnecessarily but seek professional advice if needed and start now.

What Factors Determine the Right Time to Invest in Mutual Funds?

By now you know that it is better to start investing whenever you have the means to do so. But there are other factors you should consider before making a decision. Here are the things that will help you determine the best time to invest in mutual funds. They are:

● Risk Tolerance Level

If you are an investor with a high-risk appetite, any time is suitable for you to invest. However, if you are a risk-averse investor, you might wait and invest once the market recovers. Needless to say, investors with high-risk tolerance levels have higher possibilities of enjoying high returns while the market corrects than risk-averse investors.

● Investment Horizon

Apart from risk appetite, you also need to consider your investment horizon. The horizon can be long or short-term. If you are looking for long-term investment options, equity funds are the most popular ones. But they lead to higher risk of investment as well. You will have to stay invested for a minimum of 3 to 5 years to earn considerable returns.

On the contrary, if you are having short-term investment goals, you can invest in liquid funds, money market funds or ultra-short mutual funds. They have a low risk-to-return ratio.

● Returns Potential

Equity mutual funds have the highest return potential. But they also carry a high risk of investment. If you can take high risks, you can go for equity or equity-related instruments. But if you want to be on the safe side, debt funds may be a better option.

● Tax Saving Option

Fund houses provide tax-saving options under the ELSS scheme. You can avail a deduction of up to Rs.1.5 lakh under Section 80C of the Income Tax Act, 1961. However, ELSS comes with a lock-in period of 3 years, which is the shortest among all other investment options under this Section.

What is the Best Way to Invest in Mutual Fund?

There are two ways to invest in mutual funds – lump sum and SIP (Systematic Investment Plan). If you have idle cash, you can definitely consider investing through lump sum. However, SIP is the most convenient mode of investment and is widely accepted due to its ease and affordability factor. Anyone can start investing through SIP and take advantage of rupee cost averaging.

Here is how rupee cost averaging works:

Suppose you have started investing via SIP. You pay a monthly amount of ₹2000 in an equity mutual fund. The fund’s NAV currently stands at ₹20. Nifty is at 10,000.

The following table will illustrate how your investment might work out by putting these values:

Month	SIP Amount	Nifty Value	Fund NAV	No. of Units
January	₹2000	10,000	₹20	100
February	₹2000	10,100	₹22	90.90
March	₹2000	10,200	₹24	83.33
April	₹2000	10,100	₹20	100
May	₹2000	9,900	₹26	76.92
June	₹2000	10,200	₹18	111.11
July	₹2000	10,100	₹28	71.42
August	₹2000	9,800	₹30	66.66
September	₹2000	9,900	₹32	62.5
October	₹2000	10,200	₹34	58.82
November	₹2000	9,700	₹28	71.42
December	₹2000	10,100	₹24	83.33

From the above table, you can see that you will have around 976 units of the fund with the average price of each fund being ₹25.5.

Note: The table is for illustration purposes only to show how rupee cost averaging works. It allows you to buy more fund units when the NAV is low and fewer units when the NAV is high. This lowers your cost of investment over time.

Best Time to Invest in Mutual Funds: FAQs

How does the 30-day rule for mutual funds work?

Where should I invest in long term – equity or debt funds?

Is it better to invest in equity funds when the market is low?

Should I switch to a lump sum MF investment from SIP?

For how long should I stay invested in a mutual fund?

ARN: May24/Bg/29B

Sources:

www.indiainfoline.com/knowledge-center/mutual-funds/is-it-right-time-to-invest-in-mutual-funds-know-the-best-time-to-invest-in-mf

cleartax.in/s/best-time-mutual-funds

economictimes.indiatimes.com/mf/analysis/why-is-it-the-right-time-to-invest-in-equity-mutual-funds/articleshow/98800257.cms?from=mdr

scripbox.com/mf/best-time-to-invest-in-mutual-funds/

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