Mutual Funds: Is There a Right Time to Kickstart the Investment Journey?

Mutual funds continue to be an ideal investment vehicle that helps in the diversification of a portfolio while leading to the fulfilment of financial goals. 

So, is there a right time to kickstart investment in mutual funds? While there is no universally correct response to this query, the timing of an investment is directly related to an individual’s personal financial circumstances, financial goals, risk appetite and various market scenarios.

Experts suggest that investors, especially freshers in the stock market, should always stay away from entering a fund at the peak of its return cycle.

The probable reason is that there is a possibility of a dip in net asset values (NAVs) due to marginal-to-moderate correction in the prices of the underlying assets if they have surged to their respective all-time highs. Moreover, it could influence confidence in equities and the overall purpose of initiating investment. 

The advice to start mutual fund investment as early as possible continues to hold water. The power of compounding interest becomes more potent the longer an investor stays invested. So, the earlier an individual invests,  the smaller the principal they need to accumulate significant wealth over a period.

While the future of any asset remains unpredictable for anyone, an investor should resist the urge to invest in a fund that has vastly outperformed the benchmark indices. Although this is neither a thumb rule nor aids in shortlisting any mutual fund scheme, it can reduce the chances of bad experiences at the initial stage of an investment journey.  

A systematic investment plan (SIP) facility remains an effective strategy for mutual fund investment wherein investing a fixed amount regularly leads to avoiding the timing risk, ensuring that an individual continues investing irrespective of market conditions. 

Moreover, rupee cost averaging via SIPs works well in the case of new as well as experienced investors who may not have the time to analyse and study the funds or individual assets. 

Reviewing mutual funds on a periodic basis aids an investor in shortlisting the most appropriate fund according to their financial needs, wants, expectations of returns, and risk appetite.  Also, regular reviews of the existing funds can further aid an individual in eliminating funds that have higher exit loads, expense ratios and transaction charges. 

It is important to note that higher fees associated with a mutual fund scheme can significantly influence returns in the long run, affecting the cumulative gains while making it less lucrative than an individual has envisioned at the time of investment.  

In order to make that first crucial step towards investing in equities and equity-oriented mutual funds, an investor can always start with small amounts.  

It can be summed up that the best time to invest in mutual funds is when an individual is financially ready and committed to adhering to a long-term strategy that does not depend on market timing. 

Above all, it is essential to undertake thorough research or reach out to a financial advisor before kickstarting the investing journey.