What Is the Right Time To Invest In Mutual Funds?

Padmaja Choudhury   /   April 27, 2022
common risks a mutual fund

The right time to invest in mutual funds is the present.

If you always wonder, “what is the right time to invest in mutual funds” or “when should I start investing in mutual funds”, you will get to know the answer today.

What are mutual funds?

Mutual funds are a type of investment where investors rely on the expertise of fund managers to manage their assets. Mutual fund companies pool funds from many investors and invest in financial securities. The type of securities chosen, i.e. debt or equity, depends on the scheme’s objectives.

Different mutual fund companies have varied mutual funds, and you can choose one depending on your risk tolerance and financial goals. These funds give returns. However, investors always doubt when is the right time to invest in mutual funds.

The right time to invest in mutual funds

Though it is crucial to decide which scheme to choose, it is vital to determine when to invest.

Several financial experts advise that the right time to invest in mutual funds is when the market is at its lowest. When the net asset value (NAV) of mutual funds is down, you can get good returns for mutual funds. However, in reality, the ideal time never comes.

If you’re a student, homemaker, working professional or retired individual, today is the best time to consider investing money in mutual funds.

Start investing early

Growth is not an overnight process, as it takes years to achieve one’s goals. Investing as early as possible is something we’ve been listening to for years. Here are some key benefits of starting early.

  • Early investment teaches you various aspects of the investing world. You get to know about the working of the stock market.
  • As you earn returns from your investments, you gain self-confidence and financial independence.
  • You have more courage to accept losses (if any) and market volatility as you are in a position to bear more risks than people who start later.
  • You won’t have to worry about funds in emergency scenarios as you’ll have enough money to survive.
  • You experience the working of compounding in the real world. As compounding shows its effect, your wealth begins to grow over time.
  • You can plan for your retirement and not have to worry about arranging funds when you get old.

Choose the right fund for you.

There are several parameters to choosing the right mutual fund, as “one size fits all” does not apply here. Let’s learn about these parameters today.

  • Risk-tolerance: You must define your risk tolerance before choosing a mutual fund. Equity mutual funds may be the right fit for you if you have a risk tolerance, as they are prone to high market volatility and risk. However, debt-mutual funds are preferred by the investors in the low-risk bracket as these are considered to be more stable.
  • Financial goals: Keeping your destination in mind will lead you to the right path. Your goals can be earning regular income monthly, saving for children’s education or planning for retirement. Depending on what you wish to achieve in the future, you can choose a suitable fund scheme.
  • Liquidity: Not everyone wants to keep their money invested for several years. Hence, you should know when you’ll need your money back. For example: if you want your funds shortly, say within 1 or 2 years, you should look at debt funds in that case.

Several other factors can affect your investment decisions, such as your investment strategy, expense ratio, exit load, and fund performance. The point is that you need to plan before execution.

How time difference can lead to significant deviations in returns.

There were two friends, A and B, who both wished to begin investing in mutual funds. Both of them wanted to retire at the age of 60. Mr A started at 25 years of age while Mr B started at 35. Mr A  invested Rs 10,000 while Mr B invested Rs 15,000. For the sake of simplicity, let us assume that their investments gave them an annual return of 6.6%.

Since Mr A left his money untouched for 35 years, he accumulated Rs 93,000 when he retired. Shockingly, Mr B, who invested Rs5,000 more, could only accumulate around Rs 74,000.

Hence, time plays a vital role in wealth creation.

Keep investing

Once started, you should keep investing money monthly, quarterly or yearly. Compounding is a long-term game and works well only when you leave your investments untouched for years. And wealth accumulation happens when you do not break the chain of your assets.

Investment discipline is something you should be consistent with.

Be patient

Investment is not a “get rich quick” scheme. People tend to withdraw their money when the market crashes out of fear of losing their money. But you should not care about short-term market volatility and keep your money invested for the long term. 

Conclusion

If you still wonder, “is it the Right Time To Invest In Mutual Funds” or “is it the right time to invest in share market” you know the answer now. There is no right time to start investing, as you would never find a balance between low NAVs and high returns. Hence, start today.

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