Since market movements are unpredictable, it is practically impossible to time your mutual fund investments. So then, how can you know the right time to invest in mutual funds? What if you don’t know at all? Read on to find out.

Thanks to increasing awareness regarding mutual funds, many people now consider them a viable investment option. However, is it the right time to invest in mutual funds, or should you wait a little longer? Don't worry; let's clear your doubts now.

Recommended Reading – What is Mutual Fund?

When is the Best Time to Invest in Mutual Funds?

There is a popular saying about investment. The best time to invest was yesterday. The second best time is now.

This time-tested wisdom applies to mutual fund investments as well. There are no fixed rules or criteria to determine the right time to invest in mutual funds. In fact, you may be losing a precious amount of time pondering over the best time to invest.

Therefore, it is both sensible and practical to begin your mutual fund investments as early as possible. If you are unsure about the market movements, consider investing in small amounts regularly instead of investing a lump sum amount in one go.

Why Is Timing Important in Mutual Funds?

If you plan to invest in a mutual fund with significant equity exposure, your returns would be directly linked to the stock market. If the market goes up, your mutual fund’s Net Asset Value (NAV) will also go higher. Therefore, you can get the best returns on your mutual funds if you can time your entry into and exit from a fund as per the market conditions.

However, no one can predict market movements. Therefore, it is practically impossible to predict the market lows and highs accurately and time your investments accordingly. So, it is best to trust your fund manager’s capability and the overall investment strategy stated for your chosen mutual fund and regularly invest without worrying about timing.

Having said that, it is equally important to keep a close tab on the investments. A yearly portfolio review can help you understand your investments' direction and if you need to course correct.

Factors That Determine the Time for Mutual Funds Investment

Since it is hard to time your investments, the best time to invest in mutual funds is always now. In other words, start investing in mutual funds as early as possible and keep investing regularly without worrying about timing.

However, if you still wish to time your investments, the following factors can help you identify the right time to invest in mutual funds.

• Risk Profile

  While some people want high returns by taking high risks, others believe in keeping their investments safe even if the returns are low. Consider various investment options based on your risk profile. If you are risk-averse, go with fixed return instruments. But, if you want to increase the chances of wealth creation, consider investing in equity mutual funds.

• Market Cycle

  The market doesn’t move in a straight line. The short-term market cycle is almost always filled with volatility. Investors with a high-risk appetite understand this market cycle. They simply invest in reputed mutual funds, oblivious to the market cycles. However, conservative investors might wait for the markets to correct before investing.

• Mode of Investment

  You can either invest a lump sum amount or regularly invest small amounts through Systematic Investment Plans (SIPs) in a mutual fund. You can consider investing a lump sum amount if

  • You have a significant corpus lying idle in your bank account.

  • You don’t mind the daily market volatility.

  • You can withstand the shock of sudden market corrections even if your portfolio significantly goes down temporarily.

  
  On the contrary, the SIP route of investment can be ideal for you if

  • You don’t want to invest all your corpus amount in one go.

  • You believe in building up your investment portfolio at a steady pace through small but regular contributions.

  
  
  Moreover, SIP also has the benefit of Rupee Cost Averaging. Here, investors get more units when the market is low and fewer units when the market is high, averaging the overall investment cost in the particular mutual fund.
  
  Also Read – What is SIP?

• Investment Tenure

  Your preferred investment tenure is crucial to determining the time for mutual fund investments. You need to consider the correct entry time for investments if you invest for a short period. Short-term investors can’t invest when the market is on a correction spree as they have a high risk of losing money when pulling out their investments from the market.
  
  On the other hand, you don’t have to worry much about timing if you invest for a long period, like 5-7 years. This is because long-term investors are better positioned to override the daily volatilities and focus on long-term capital appreciation.

So, is it the right time to invest in mutual funds? The short answer is yes. But, you need to have the patience to reap the benefits of compounding.

In the last few decades, the world has gone through many upheavals. Yet, the Indian markets have been resilient, and long-term returns from mutual funds have been good. So, it is time to shed all your doubts and invest in a reputed mutual fund.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.