When is the Right Time to Invest In Equity Mutual Fund?

Investment in a mutual fund is the mature financial decision you will ever make. Even though the popularity of mutual funds is rising day-by-day, yet there is a certain percentage of the population that hesitates to explore this segment considering the risks involved in it.The fact is a mutual fund scheme is anytime better than traditional investment models like fixed deposits, recurring deposits or savings account as it provides good returns. Even if you're a novice investor, you can make your investments count. Let's get to know about mutual fund investment in detail.

A mutual scheme is a collective investment process where an asset management company or fund manager pools funds from various individuals, who have similar investment goals. The pooled funds are invested in assets like debt or equity fund or a balanced fund to generate returns so as investors can realize their goals/objectives. Whether you visit online or a financial broker, you will find various mutual fund options but selecting the best one is the most significant barrier. A mutual fund consists of various types; this includes:

• Equity fund: This predominantly invests in company stocks where investors want to experience wealth creation or capital appreciation. Some of the examples of equity funds are large-cap, small-cap, mid-cap sector funds, multi-cap, thematic funds and tax saving funds. Since equities are market-linked products, they are risky.
• Debt Fund: As compared to equity, debt fund is the safest option for investors looking for regular income generation. Debt fund generally includes fixed income securities such as PSU bonds, Commercial papers (CPs), certificate of deposit (CDs), treasury bills and so on. Some of the examples include short-term funds, liquid funds, gilt funds, dynamic bond, and corporate debt.
• Hybrid or Balanced Funds: These include investment in both equities and debt funds, so as a portfolio offers dual benefits including Growth Potential and source of income. If you want to have a taste of both, you can invest in Conservative Funds , Pension Plans, Child Plans, Monthly Income plans and so on.

Mutual fund investment offers flexibility, especially when it comes to asset allocation and switching. This the primary reason why many seasoned investors prefer to invest in mutual funds. Before you plan to take this route, you must have a pre-defined investment goal, and you should also know your risk appetite.Often, people who don't have enough knowledge on investment think that mutual funds always perform well when the market is at its peak. This is a common misconception. Typically, the following scenarios indicate investors that it's the time to make MF investment:

• When the market is badly hit
• When the real estate market is an all-time low
• When bonds returns are highly-performing

Till now, no investor has been able to answer the best or the right time to invest in mutual funds . However, while investing, you should always ascertain that a fund's Net Asset Value (NAV) is low. The reason for this is, you will experience higher returns and better wealth accumulation.

You can invest in the mutual fund using modes like Systematic Investment Plan (SIP) or Lumpsum.SIP is a preferred investment model for investors who cannot afford to invest a huge amount at once. Such investors can be new or experienced. Also, new investors often lack investment expertise; this investment mode can be a boon. In the SIP mode, you can purchase many units at a lower Net Asset Value (NAV) and less mutual fund units at a higher NAV. This strategy is known as Rupee Cost Averaging.On the other hand, Lumpsum mode is suitable for high-risk profile aggressive investors, who worry less about one-time investment. One can also choose the lumpsum option if you have huge savings sitting idle in your account, but again you should be risk-taker.

As there is no ideal time to invest in mutual funds, below are the factors that will help to determine the same:

• Market Situation: As an investor, you should keep in mind that mutual fund units are market-linked products. High risk profile investors can invest any time as they are used to the rise and fall of the market. At the same time, risk-averse individuals can initiate investment when the market is volatile as losses get recovered when the market gets corrected.
• Return on investment: Whenever you decide to invest in a scheme, you will always want to know how much yield the scheme will generate. The returns on a fund scheme totally depend on the type of fund you choose. If you're looking for higher returns with an ability to take high risk, then equities are the best. On the contrary, a debt fund is an ideal option for low-risk profile investors.
• Risk Appetite: Determine your risk-taking ability. If you're mostly looking for protection of funds, it means you're a risk-averse investor. Hence, you can choose between debit or hybrid funds. Similarly, if you are ready to risk your funds for a more significant capital appreciation, growth fund with one-time investment is the route you can choose.
• Tax Benefit: When you know that traditional saving schemes like a fixed deposit or recurring deposit aren't helping you save maximum tax, then it's time you should consider mutual fund investment. Even if you invest Rs.1 lakh towards the mutual fund in a year, you will be eligible for tax deductions under Sec 80C of the IT Act. As per the law, the maximum limit on tax-exemption is Rs. 1.5 lakh in a financial year.
• Investment horizon: Your investment goal helps to decipher whether you should begin short-term or long-term investment in a scheme. If your long-term goal is to save for retirement, then you can Unit-Linked Pension Plan (ULPP) or any other plan that offer healthy returns at 12% as compared to the regular retirement plans. Short- investment horizon people who want to invest in safe options can select any of the debt fund options like commercial papers, government securities or more.

A mutual fund is a transparent investment scheme, where you can access every information that you need. Although the risks are involved, yet with proper asset allocation in a portfolio, you can spread the risk and earn better returns. Are you ready to invest?

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.