What is the Right Time to Invest in Mutual Funds?

A simple concept of the Mutual Fund introduced in 1924, has grown to one of the biggest industries in the world today. Everybody wants to invest in mutual funds to reap the benefits. But how do you know whether you’re investing right?  Advice against putting all your eggs in one basket has been around for as long as anyone could remember.

Wealthy and successful people are all investors – in some way or the other. There aren’t many exceptions to this rule. Listed below are some tips to help even a novice invest like a seasoned pro.

What is a Mutual Fund?

A fund that is managed by Asset Management Companies (AMC) is referred to as actively managed funds. Mutually funds that are passively managed are indicated to be passively managed funds.

A mutual fund is a portfolio of stocks actively and systematically monitored by a portfolio manager. Funds can be invested in equity, bonds, debts or government securities. It is the appropriate choice for a passive investor who does not monitor the stocks on a daily basis.

Mutual funds follow aggressive strategies in the hopes of gaining higher returns but these come with higher risks. The conservative funds, in turn, come with lower risks but often reduce the rate of return. Most mutual funds are sector specific and it is better to invest in an assortment of funds.

Forecasts today are heavily influenced by demonetization and the budget for a particular year. In 2017, the Securities and Exchange Board of India asked fund houses to merge all schemes into 36 broad categories. As a result of this consolidation exercise, fund houses have been asked to showcase past performances.

How to Invest in Mutual Funds?

Deciding to invest in mutual funds can be an arduous procedure. When the time does come, it would be wise to consult with a professional with years of experience in the matter. Their expert view can help you make decisions in the right direction and invest your wealth smartly.

Best-case Scenario for Investments:

The best time to invest in Mutual Funds would be when the highest returns are guaranteed with, in turn, rapid growth and lowered risks.

  • When the market has hit an all-time low Supply and Demand are the factors that drive the fluctuations in any market. It is a good idea to invest more when the market is down for the simple reason that there is a higher possibility to make more are the markets recover eventually.
  • Bond yields are high A bond yield is a return that a stockholder can gain from the purchase of a bond. Bonds and rates are inversely proportional. Rising yields indicate rising interest rates and a steadily declining yield rate indicates that the markets are slowing down.
    Investing in Debt Mutual Funds when bond yields are high can be beneficial. According to statistics, in the past 10 years, there has been a higher return on average following higher bond yields.
  • Historical Returns Picking bad funds that underperform have proven to be unwise investments. It is important to review the mutual fund prospectus over the past 4-5 years to gauge its performance. The historical performance gives investors an idea of how the fund can perform in a bull market as well as a bear one.
    Good past performance is the best case scenario for investing in a mutual fund.

Factors That Influence the Best Investment Time:

  1. Long-term v/s Short-term horizons
    An Investment Horizon is the period of time that an investor plans on holding a portfolio. The right time to invest depends upon whether the investment horizon is long or short. The volatility of the market becomes a factor in short-term investments rather than in long-term ones. It is imprudent to have aggressive investment strategies with short-term investments.
    Investment horizons should match the investment choice.
  2. Market Standing
    The trend of the financial market is to be considered before investing in a fund or some stocks. It would obviously be a rookie mistake to invest in mutual funds when the markets are not doing too well.
  3. Returns on Investment
    The thumb rule that investors need to work with is that equity needs to preserved to finance short-term goals. To do this, it is essential to ensure that the Returns on Investments (ROI) are high. This ratio is defined as the financial ratio that determines the benefits that an investor can gain with respect to their investment costs.
    Return On Investment (ROI) = Net Income / Cost of Investment
  4. Tax Benefits
    Section 80C of India’s Income Tax Act allows a deduction from the gross total income of up to Rupees 1.5 Lakh per annum. Tax Saving Mutual Funds are eligible for tax benefits.  It is important to understand this before deciding on where and what to invest in.
  5. Risk Inclination
    Most investors tend to ignore the risk factor when it comes to investing in mutual funds, but it is important to understand the risk-return relationship to make better investment decisions. Customarily, Mutual funds are low risk investments but even they tend to come with their own pitfalls. Diversification in one’s portfolio helps to minimize risks efficiently.
    One should accept the volatility of the market– and work around it – while beginning investing in mutual funds to ensure higher returns.

Is it the Right Time to Invest in Mutual Funds?
Bulls and Bears

Anyone who is investing in the markets needs to understand that the investment amount goes up and down with respect to time. The prices of stocks and funds fluctuate according the market movements. Bear and Bull describe the general trends of the stock market. A Bull market is when the share prices are generally going up. Buying of stocks is encouraged. Portfolio returns are higher.
A Bear market is when the share prices are generally going down. If a market decline is upward of 20%, it is considered a Bear market. This matter is of importance
if funds and shares are being bought and sold in a short time frame.

Investing when the Markets are at an all-time high

Following basic guidelines should make the matter of investing less troublesome- especially during the market highs. When the current market is scaling highs ever so often, the question on every investor’s mind is whether to invest in the market or not.

By analyzing the Price to Earnings ratio of the Sensex, it is easy to determine whether the markets are actually riding on a high. The P/E ratio is the ratio of the market price of a stock to its earning per share. Timing the market is not possible and not advisable. However, some steps can be taken to reduce the risks associated with the volatility of the market.

Mutual Funds are not Limited to Equity Mutual Funds

An investment in Equity Mutual Funds can be volatile if the investment horizon is short. For long term goals, it is always the right time to invest in the said Equity Mutual Funds. However, all mutual funds do not invest in stocks. Some of them invest in debt instruments and others invest in fixed income securities. These debt mutual fund investments are unaffected by the volatility of the financial markets.
They are considered ideal for short-term goals and are more tax-efficient than bank deposits.

Systematic Investment Plan

A systematic investment plan (SIP) is the most prudent solution to mitigate the effects of the volatile market. Investing in mutual funds through an SIP takes care of the highs and lows of the market by averaging them out and alleviating the risks, while simultaneously providing decent returns. The market need not be timed according to the bull and bear period of the market.
In the SIP model, investors tend to purchase more when the market is down and purchase lesser when the market is riding a high, thus effectively mitigating risks.

When to Exit the Mutual Fund:

  • When the fund is constantly underperforming
  • Desired financial goals are not being met
  • Fund manager’s views are not aligning with yours
  • Core features of the fund have been modified
  • When it is time to diversify and rebalance your portfolio


The last year has witnessed a 37% increase in the amount invested in Mutual Funds with the amount totaling to around Rs 18 Trillion. This statistic clearly shows that more Indians are choosing to invest in Mutual Funds as opposed to other forms of investments.
With the issues in conjunction with the demonetization of 2017, banks were flush with cold cash and cut down the interest rates for bank deposits. Many Indians began investing in mutual funds as a direct result of this.

Although it is best to study the market performance before investing, the financial decisions made should depend primarily on financial goals. All in all, yesterday was the best time to begin investing in Mutual funds. The earlier one begins, the more benefits are to be gained. Returns are forgone the more that it is delayed.