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When Is The Best Time To Start Mutual Fund Investment?

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Last Updated on February 10, 2023 by Tabraiz

When is the best time to start mutual fund investment? It can be a difficult choice to make, because mutual funds can be a great way to earn a steady income and build a portfolio. However, it’s important to make sure you are ready for such an investment.

The best time to start mutual fund investment will depend on your unique personal and financial circumstances. Generally, it’s advised that investors have at least six to 12 months of emergency savings securely stored away before they start investing. This will help protect against any unforeseen economic events that may occur. It’s also important to make sure you are clear on the objectives of your investment, such as whether you wish to use it as a retirement savings plan or as a means of diversifying your portfolio. By understanding how you plan to use the funds, you can better plan for when you should start investing.

Investors should also take the time to educate themselves on the different types of mutual funds available. This includes learning about the types of investments offered by various funds, the fund’s past performance, the management fees they charge, and the maximum load imposed by the fund. By learning more about mutual funds , investors can assess which funds are best suited to their individual financial goals and risk tolerance.

It’s also important to note that the best time to invest in mutual fund is when stock markets are relatively stable. This way, investors have the opportunity to take advantage of opportunities to buy low and sell high. Thus, investors should pay close attention to stock market movements and make use of any dips in prices to buy low-cost funds.

Overall, the best time to start mutual fund investment will depend on the individual investor’s financial situation, financial goals, and risk tolerance. Investing in mutual funds is a great way to grow a portfolio and increase income, but it’s essential to make sure all the necessary preparations have been made first. This includes having sufficient emergency savings, becoming well-educated about the type of funds you are investing in, and choosing the right time to enter the market. By taking these steps, investors increase their chances of earning a steady return from their mutual fund investments.

Other than timing the investing, one should also follow these crucial steps to choose the best mutual fund scheme:

Define your investment goals and needs

Investing with definite and measurable goals help you in being a better investor as goals encourage developing savings habits. Hence, before you start investing in mutual funds, decide on your goals for investment. Examples of Goals: Long-term capital appreciation, periodic income, tax savings, liquidity, short term gains, etc.

Based on the goals, mentioned below are some examples of best mutual fund scheme:

GoalsBest Mutual Fund Scheme
Long-term Capital AppreciationEquity Funds –Growth Funds, Value Funds
Periodic IncomeMIP, SWP or Dividend Yield Funds
Tax SavingsEquity Funds – ELSS
LiquidityDebt Funds – Liquid Funds
Short term gainsDebt Funds – Ultra-short Duration Fund, Short Duration Fund, Overnight Fund.

Define your Risk Profile

Investing in mutual funds carries several risks such as market risk, credit risk, liquidity risk, etc. Hence, before you select a scheme analyse your risk appetite in three steps – need to take risks, the ability to take risks and the willingness.

Based on the risk profile, mentioned below are some examples of best mutual fund scheme:

Risk ProfileConditionMutual Fund Schemes
Need to take risksYesEquity Schemes, Aggressive Hybrid Schemes
NoDebt Schemes, Conservative Hybrid Schemes
Ability to take risksYesEquity Schemes – Sectoral Funds, Small Cap Funds, Mid Cap Funds.
NoDebt Schemes
Willingness to take risksYesEquity Schemes
NoDebt Schemes

Age of the investor

Age of an investor can also be associated with Risk Profiling, where a risk-taking capability can be determined. Investors at different stages of life should take risk only up to a certain limit so that loss of money would not put a financial burden on the lifestyle.

 Based on the age, mentioned below are some examples of best mutual fund scheme:

AgeRisk Taking CapabilityMutual Fund Schemes
18 Years to 30 YearsHighEquity Schemes
30 Years to 45 YearsMediumAggressive or Balanced Hybrid Schemes
45 Years to 60 YearsLowConservative Hybrid Schemes
60 Years+Very LowDebt Schemes

Time Horizon of Investment

Goals set by an investor are further classified based on the time period available for goals to mature. Goals can mature in ultra-short term, short term, medium term or long term. 

Longer the time horizon for goals to mature, higher would be the risk-taking capacity, whereas one may avoid risks when their goals are near maturity.

Based on the time horizon for your goals to mature, you can buy mutual funds mentioned below:

Time HorizonRisk LevelMutual Fund Schemes
Ultra-Short TermLowestDebt Schemes
Short TermLowConversative Hybrid Schemes
Medium TermMediumBalanced Hybrid Schemes
Long TermHighEquity Schemes

Creating Core and Satellite Portfolio

Mutual fund investments are usually recommended for the long term, so that your investments can grow over the time beating the market volatility. However, short term traders see that the daily volatility in markets also offers a good earning opportunity.

Ideally, a mutual fund investor should divide his Portfolio into two parts: Core Portfolio for his long-term goals and needs and Satellite Portfolio to take advantage of expected short-term market movements.

Based on the Portfolio selected for asset allocation, you can choose following mutual fund schemes in India:

Portfolio TypeGoal TenureMutual Fund Schemes
Core PortfolioLong termA mix of Debt, Equity, Gold or other such schemes in varied Proportion.
Satellite PortfolioShort-term
Interest rate fluctuationsDebt schemes
Market fluctuationsEquity schemes, ETFs
Commodity price fluctuationsGold ETFs
fluctuationsInternational Funds 

Conclusion

The best mutual fund schemes in India for you would be based on your need for investment (Goals), risk profile, time horizon and returns expectation, there isn’t one scheme that will be best suited for all. Hence, always do adequate research before you invest.