There would be different advice that you would get when you ask this question, “When to invest in mutual funds”!
To avoid all the confusion, it is best to understand how the market works and based on that, devise a customized investment strategy for self.
In pursuit of the same, we can look at two possible scenarios when it comes to mutual funds investments.
- You invested 1 lakh and received a CAGR of 24%. The invested 1 lakh became 10 lakhs in 10 years.
- You invested when NIFTY PE had hit below 17 and sold when PE crossed 25, your 1 lakh became 1 Crore in the same 10 years.
It goes without saying that there is always a risk involved when it comes to investing in the market. If you expect higher gains, your risk taking capacity has to match too. Yet, there are many ways to minimize that risk. To avoid huge risks, people often opt for SIPs and try hedging and arbitrage. Whatever the strategy is, it is important to learn the market thoroughly. In addition, listening to a certified financial advisor always helps to make sensible and foolproof investments.
In all actuality, there is no best time to invest in mutual funds. The key is to keep one’s investment horizon long and be prepared with cash to feed the other needs. If one is expecting to capitalize on the mutual funds’ investment in less than 3 years, it is always better to invest as per the advice of a knowledgeable financial advisor or fund manager. Only a certified financial advisor can advise you right to invest in a liquid fund or a balanced one, as per your priorities, risk capacity and budget.
People with an investment frame of more than 5 years can actually invest at any time. Here too, the recommendations of a financial advisor must be solicited as he would help you to choose the best investment instruments as per your age, risk profile, financial goals, the amount that you are investing and the time period.
Moving ahead, it is also imperative to understand the current situation of the market considering the drastic fluctuation it has undergone in the past couple of years. The stock market crashed so drastically from a figure of 9100 on NIFTY in February 2015 to a nosedive figure of 6900 in January 2016.
When we closely observe NIFTY and SENSEX, we understand that maximum space is given to the banking sector. This is simply because the Indian market capitalizes on banking and approximately 52% of the space is dedicated to banking, FMCG and realty. All these also happen to be the sectors that take most of the investment-consumption from a large number of informed investors. However, things changed when in January 2015 RBI grew serious about the riding graph of banking NPAs and instructed all the banks to disclose or reduce the same. This was the time when banks started using 5:25 or SDR mechanisms to categorize NPAs and selling their bad loans. This, in turn, resulted in a full disclosure of all the bad loans acquired by various corporate houses that affected the profits adversely. The stocks started to get rated downwards, drastically.
All this fiasco created a huge panic in the market and as a result, most of the investors started selling their banking and financial company shares. NIFTY for banking became quite weak and created cracks in other adjoining sectors too. The prevalent and leading norms of the market became tighter and it became difficult for the corporate to get loans. The process in a straight 20% loss for NIFTY and kept falling for another few percents. However, eventually, the fall bottomed out and became stagnant around 6300-6600 for NIFTY.
Today, after crawling at a rather slow pace, the profits of most companies are at a steady rate and the banks have almost cleared their bad loans. Now, the slate is nearly clean and makes a good pedestal for investments.
Therefore, it is the good time to invest in mutual funds but for a larger time frame. The credit growth has improved substantially and the economic indicators are quite motivating. In fact, now is also the time to prepare self for greater mutual funds investments to find best gains in the upcoming years. By the end of this year, people are set to see a spectacular rise.
Having said that, the fact remains it is always the most sensible move to take to hiring the services of a financial advisor who knows the market inside out. It is also important to find out the best time to invest in mutual funds.
Mfundz is all equipped with qualified and experienced financial experts waiting to examine your investment portfolio and revive it for all the goods.