During the pandemic ravaged 2020, mutual funds investment had seen unprecedented growth, adding 72 lakh folios in the year, a healthy increase from the previous year. This surge is mainly due to rising disposable income and low return on bank deposit, which made mutual funds a lucrative option for investors. Experts hope the robust trend to continue in the current fiscal.
Mutual funds are popular for the obvious reasons – diverse product offering, flexibility, liquidity, and return. The recent time has seen a surge in mutual funds investing. SEBI norms have allowed companies to design specially crafted modern funds based on investor’s risk appetite and investment goals, resulting in growing fondness for MF products.
The unique features of mutual fund products make it an all-season investment tool, meaning there is no need to time the market to invest in mutual funds like equity investment. Anytime, any day is good to start mutual funds investment.
What Is The Best Time To Start Mutual Funds Investment?
While it comes to investing, investors always try to time the market right to increase profitability. But with MF, anytime is the right time. It has a low entry barrier (there is no minimum amount of investing), allowing anyone to begin their financial journey with MF.
However, theoretically speaking, the best time to invest in MF is when the NAV value is low since it allows you to get more units for your investment. Usually, three conditions that propel MF investment. These include,
– When the market is at its lowest
– Return on bonds are high
– A slump in the real estate segment
Since the above factors rarely occur, it is hard to define the perfect time for the market.
Mutual funds investment is an anytime investment, but you still need to keep the following points in mind.
Time your investment as per your financial goal
SIP investment allows you to invest under any market condition. When it comes to SIP, time plays a crucial role. A longer time horizon allows more wealth accumulation through different market phases. Similarly, the right time to plan lumpsum investment is when the market is low.
Time horizon and capital growth
When you have a longer investment horizon, invest with a SIP plan. It helps manage market volatility and functions on money cost averaging. Investing in liquid funds is beneficial for investors with short term liquidity issues.
Save lumpsum investment for low market conditions
The best time to plan a lumpsum investment is when the market is the lowest. It ensures you get more units, which will translate into more return.
Plan for tax saving funds
Tax saving mutual funds or ELSS funds come with a three year lock-in period. These funds offer tax savings under section 80C of the Income Tax Act 1961, like tax saver fixed deposits and life insurance policies.
Time your Systematic Transfer Plan (STP)
STP allows investors to invest initially in a liquid fund and then transfer the amount systematically to a select debt, equity, or balanced fund.
It suits investors with a windfall of money that he needs to invest when the market is high but not sure about the sector where to put it. These allow the investor to buy some time and gradually shift his funds to a preferred investment option.
If you want to know the best time to start investing in mutual funds, the time is now. But few more governing factors will give additional insight on selecting the best mutual funds for investing, like – risk appetite, return on investment, and long and short time horizons. Risk-averse investors may wait for the market to correct itself before investing, while aggressive investors can invest any time.