When is the Right Time to Invest in an Equity Mutual Fund?

If you are someone who seeks financial stability but haven't figured out on how to go about financial planning, it's high time that you get started. Some people are naturally good with money management and for them financial planning becomes easier. The main thing about financial planning is understanding your short term and long term financial goals. But how will you invest if you aren’t able to save anything in the first place? Millennials need to understand the importance of savings. Remember that you are going to need more money in your old age than you need now, but if you spend everything that you earn and fail to discipline yourself you may never attain financial stability.

Once you have a defined set of short term and long term goals, it is better that you understand your risk appetite. A risk appetite is an investor’s ability to take a certain amount of risk with an investment with the hope of fetching some capital appreciations in the long run. Every investment scheme carries a different risk profile and hence, as investors it is essential that we determine our appetite for risk before going ahead with any form of investment. There are some people who have zero risk appetite and hence do not wish to take any chance with their finances. Such individuals have to settle with investment schemes offering low interest rates.

Although there are some investors who do not mind taking added risk with the hope of fetching better capital appreciation. Such individuals with a young and aggressive mind-set may consider investing in equity mutual funds.

What are mutual funds & equity funds?

In the recent past, mutual funds have gained popularity here in India. Mutual funds are being considered by a lot of individuals as an investment vehicle simply because of the kind of returns they have provided in the past. However, investors should understand that since mutual fund investments are subject to market risks, returns from these investments are never guaranteed.

SEBI, the regulator of mutual funds in India, states mutual funds as a, “mechanism for pooling the resources by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in the offer document. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with the quantum of money invested by them. Investors of mutual funds are known as unitholders.”

Mutual fund houses collect money from investors sharing a common investment objective and invest this pool of funds across the Indian economy in instruments like equity, debt, call money, certificate of deposits, corporate bonds, government securities, etc. Mutual fund investors are allotted units in quantum with the investment amount and depending on the fund’s existing net asset value.

Mutual funds are further categorized based on certain unique attributes like asset allocation, risk profile, investment objective/strategy, etc. Equity funds are those mutual funds that invest predominantly in equity and equity related instruments.

When is the right time to invest in equity funds?

There is no time such as ‘perfect time’ or ‘right time’ to invest in equity funds. As mentioned earlier, equity funds allocate a major chunk of your assets to equity related instruments. Equity oriented instruments need time to grow and hence the earlier you start investing in equity funds, the better it is. Remember that even seasoned investors find it difficult to time the market. So if you are going to wait for the ‘perfect timing’ to arrive, you may miss out on an opportunity to start investing early. When you invest early you even benefit from a powerful tool like compounding. Compounding has the power of turning small investment amounts into decent corpuses. Also, it is better to club equity funds with long term financial goals like retirement planning or securing your child’s future. If you remain invested for the long run, your investment might be able to beat inflation as well. Hence, the earlier your start investing in equity funds the more chances you have of building a decent corpus.

Now that you are aware about the right time to invest in equity funds, plan on investing? Remember that there are plenty of mutual fund schemes to choose from and hence it is better to do some basic research about the fund on mutual fund app before investing. Apart from the fact that you should only consider investing in equity funds owned by reputed AMCs, you should check for the fund’s past performance and consider investing in an equity fund that has been a consistent performer. Lastly, if you feel that you might not be able to take an informed investment decision and need further assistance, then it is better that you seek the help of a mutual fund expert.

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