Which is The Best Time to Invest In SIP?

Today, an increasing number of investors are looking at mutual funds as a viable investment option to earn low-risk, steady returns. Investing in mutual funds comes with many benefits. They are flexible, offer significant diversification to reduce risk, and are managed by a professional. Though there are many advantages, mutual funds also have some concerns, such as finding the right time to start investing in mutual funds.

Is there a right time to invest in Mutual Funds?

Investment Amount

Since mutual funds are subject to market risks, investors often try to find the best time to invest in mutual funds. While there are many theories about the best time, most experts will tell you otherwise. There isn’t any ‘best’ or ‘most suitable’ time when it comes to investing in mutual funds. Any time you are ready to invest, it is the right time. It is more about how and where to invest with mutual funds than when to invest. However, here are a few situations that are considered favourable for investing in mutual funds:

• When the market is low or is going high

• When bonds yield high returns

• When the real estate sector isn’t performing well

Modes of Mutual Fund Investment

There are two ways to invest in mutual funds:

1. Lump-Sum Investment

Lump-sum investment is investing a large amount at one go. It is ideal for those who have a high disposable income.

The right time to invest a lump-sum amount:

• When You Receive a Large Sum:

  Keeping your money idle does not help it grow, and hence, it can be invested in a mutual fund scheme. However, you should be able to stay invested for an extended period to make real gains.

• Getting Tax Exemption Under Section 80C:

  Investing in mutual funds such as ELSS or Equity-Linked Savings Scheme can allow you to claim a tax deduction. Hence, if you are looking to save your taxes, you can start investing in MF during the tax filing season.

• You can Afford to Wait for a Few Years:

  One of the best times to invest in mutual funds is when you get extra money, such as an incentive or a bonus. When you invest a lump sum amount in mutual funds, you will have to prepare yourself for a lock-in period, which could vary from 3 years to more.

• NAV Factor:

  Though many consider the NAV (Net Asset Value) of the funds while investing, experts say it is not a reliable decision. NAV may help in some mutual fund investments but buying multiple funds with lower NAV may not guarantee high returns. The choice of funds determines the returns and not a lower NAV

2. SIP Investment

SIP or the Systematic Investment Plan is a mode of investment where you can invest a fixed amount at specific intervals in mutual fund schemes. SIP investment is one of the best ways to invest in mutual funds as anyone with a regular income can invest and earn steady returns.

The right time to invest in SIP:

• When You Want to Invest But Do Not Have a Large Fund:

  With SIP, you can start investing a small amount, as low as Rs.500 every month, in a mutual fund scheme. You can invest a small portion in mutual funds through SIP whenever you have a steady income.

• When You Want to Invest in Mutual Funds But Are Cautious:

  SIP is suitable for those who want to test if mutual funds are right for them. By investing small amounts regularly and tracking returns, you can find if the investment is helping you with your financial objectives.

• When You Do Not Wish to Take a Risk:

  Mutual funds and risk go hand-in-hand, but SIPs spread out the risk over a period, mitigating the risk potential. The longer your investment, the lesser the risk. Hence, the best time to start a SIP is when you want to invest in an instrument with a lower risk profile.

Conclusion

Investing in mutual funds can help you manage your financial objectives by earning regular and steady returns with lesser risk exposure. However, the key to mutual fund investment is to make the right choice regarding the mutual fund schemes. As for the right time, it is always NOW!