The best time to plant a tree was 20 years ago. The second best time is now.
There is no fixed time for doing certain things. This applies to all important affairs and investment being the spine of a financially stable life, holds a special importance. In the current scenario, the multi faceted mutual funds, due to their tax-free and growing nature, are becoming a popular choice among the masses. But there are people who restrain themselves waiting for the right time. So, when is the right time to invest in mutual fund?
If planning to achieve long term financial goals, it is believed to enter the markets when it is not doing well rather than entering when it is doing very well. Seeking the conventional wisdom, the best time to start the mutual fund investment is when the market is low and sell when it’s high. The money is made by staying in the market and compounding. The difference lies in, when to start and withdraw the funds.
Here is the table showing returns generated by both, the set of investors who invest when the market was low and when the market was high :
|Entered during market Low||Entered during market High|
|Date of Investment||4-Dec-96||14-Jun-06||13-Dec-00||7-Mar-00|
|Return in the 1st year of Investment||28.49%||59.07%||-20.92%||-27.60%|
|Returns till end of July 2015||13.27%||13.39%||13.75%||11.05%|
Source of Index values: www.bseindia.com
When is the right time to enter mutual funds?
For the people pooling the money in equities, PE scale serves as a parameter to judge how pricey the markets are at a given point of time. The standard time to invest in equity mutual fund is when P/E (price/earning) ratio falls below a certain threshold.
When is the right time to redeem?
The ideal time to redeem is when the objective is achieved. Withdrawing the money when the market is not performing will not be a perfect choice. The results have shown that the investors who have withdrawn at the highs of the market have got better returns. Also, there are the other reasons that may support the decision of redemption and they are as follows:
- The fund you have invested in continues to underperform over a stretch
- The investment objective has changed
- The existing fund manager changes the fund house
- The goal is accomplished
As it’s not the timing but time in the market that matters, the investment can be started focusing on the financial goals and assessing own risk appetite. The investor needs proper asset allocation to manage the volatility of the market.
All that is required is patience and discipline, not timing.
Disclaimer – Mutual Funds are subject to market risks. Please read the scheme related documents carefully before investing.