When Is The Best Time To Invest In Equity Mutual Funds?

Pexels The year-end curtains have been drawn; it is time to bid adieu to the old and unveil the New Year to embrace the new. It is a time to set resolutions and goals for ourselves, which will enhance our physical, mental and financial well being. The first two are health related and we try to keep up with them while ignoring our financial well-being as the year goes by. When we say financial well being, we mean investment decisions.

We don’t invest thoughtfully in equity because we try to follow the mantra “buy low, sell high” and fail to do it. It is seen that when markets hit rock bottom, most investors focus on exiting their investments to preserve their capital rather than trying to take advantage of lower prices and deploying additional capital. Or they do not think long term and put off their investment.

The common reasons investors give when they wish to avoid or postpone their investment are…

“It’s too late!”

Or “It’s not a good time.”

Or “Why should I invest now?”

Or “When should I invest in Mutual funds?”

Or “What is the best time to invest in mutual funds?”

If you too are giving these reasons when it comes to investing, then you are making a big mistake. Remember, you should not delay investing; start your investment journey right away! The best time to start your investment journey, if you haven’t already started, is ‘Today’!

Here are a few tips to help you begin your investment journey. 1. Do Not Delay, It Can Cost You

When we stall or avoid investing, we are simply delaying or completely evading successful wealth creation. Delay in investing reduces the power of compounding as the investment term decreases.

To understand better, let us see the amount three friends – Ajay, Vijay and Ram – would get at the end of their investment tenure. If Ajay starts investing INR 2,000 per month at the age of 25, for his retirement at age 60, and two of his friends, Vijay and Ram, begin investing 5 and 15 years later, respectively, then the future values of each will be different.

It is seen in Table 1 that the future value reduces with the reduction in the investment term (subtract the age of the person from the retirement age).

Table 1: Effect of delayed investment Ajay 25 35 840,000 1.28 crore Vijay 30 30 720,000 69.89 lakh Ram 40 20 480,000 19.78 lakh Even though they have all earned the same rate of returns per annum on their investment, Ajay who started investing early will have the biggest corpus by far at the time of retirement. Therefore, starting the investment journey early is a boon, if you want to build a huge corpus for your financial goals.

In fact, let us assume that even though Vijay delays his investment by five years, he invests an additional sum of INR 1.20 lakh per annum to catch up with Ajay, and Ram invests INR 3.60 lakh per annum to catch up with both. Even then, the corpus will be INR 1.11 cr for Vijay and INR 99.05 lakh for Ram, which is less compared to Ajay’s future value. The difference is nothing but the cost of delay. 2. Choose the Right Asset to Deal with Volatility and Risk

Choosing the right asset is important as it will help in growing wealth for you. Equity as an asset class can help you grow your wealth manifold but along with higher returns comes its volatile nature, which investors tend to confuse with risk.

Volatility reduces over a period of time but risk may not. Risk is about choosing the right product. For example, if you chose a company with bad management, it could be a risk; irrespective of how the market moves, the price of the share may never appreciate.

The stock of Kingfisher Airlines is a perfect example (graph 1). The stock in 2006 was at INR 76, and later in 2007 it reached its peak of nearly INR 300+ only to fall drastically and never recover. In the end, an investor would have lost all his money because the stock was delisted. This is a classic example of a risky proposition which resulted in a permanent loss; but it was not volatility.

Graph 1: Price movement of Kingfisher Airlines Source (Ventura Research) Now, if instead you choose a company with good management, the price may be stagnant and may not move for a really long period of time, but eventually it will deliver results. Choosing a […]

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