One of the persistent questions surrounding the mutual fund market is when to enter the market and start making investments and when to leave the market. There are a number of investors who tend to lose good money because of untimed entry and exit from the mutual fund market.
The importance of timing is so particular in the mutual fund market that the investment-specific World Wide Web is filled with articles guiding the investors to make the most of the market time.
However, in this article, we will not be looking at the depths of how the mutual fund investment decision should be made. We will be looking at the mutual fund investment timing at the superficial time by talking about the instances where it would make sense to enter the market and times where it would be best to take the profit and leave.
Let us start by looking at the time when investors should put their money in mutual funds and then go on with the time when they should take their money out.
Without further ado, here we go –
When should you enter the mutual fund market?
You might be thinking that you know the answer to this one – Enter the Mutual Fund market when the market is seeing a downturn. Because at the time of a declining market, the fund amount would be low, you will be able to gain greater returns when the market finally picks up.
While, yes, economic status or the market does play a major role in deciding whether or not to enter the mutual fund, the role it actually plays is not that great considering mutual fund is a game of compound interest which only grows when you remain invested for long-term.
With that sorted, let us see when should you actually invest in mutual funds.
- When you have identified a financial objective
Suppose you get an epiphany one day – One that motivates you enough to buy a car or buy a house. Now let the feeling linger for two or three days, if they still stand strong, congratulations. You have found your financial goal.
And since you have now got a goal which can be attained with money, invest to make it a reality. Categorize the goal in long-term or short-term, find an aligned mutual fund type and make the investment.
- When you get a bonus
It is very common in an Indian setup for offices to give their employees bonus on festivals. Bonuses, as you know, are nothing but an amount of unexpected money in your bank account, for which you have not yet found any use.
So, when you get a bonus at a time when you have everything you want, invest in mutual funds.
Yes, getting the hang of entry time is really that easy. The “Right” time to invest in Mutual Funds is NOW.
With that attended to, let us now look at when to leave the market or take your invested mutual fund amounts out.
When to Stop Your Mutual Fund Investment?
The answer to this is not as easy as the answers to the previous questions. There are indeed a number of reasons, which calls for investors to take their money out mutual funds.
- When you have met your financial goal
The most straightforward reason behind stopping mutual fund investment can be to stop when the financial objective is met. After all, your time would have come to sit back and reap the benefits, instead of continually making the monthly investment (like in case of SIPs) or a lump sum investment.
- When the fund refuses to perform
Another obvious reason to stop mutual fund investments would be when the fund stops performing. While we do not recommend taking out the money at the first sight of underperformance but we do expect you to take the money out when the fund is underperforming for 2 – 3 years on end.
- When the fund is showing signs of risk
You would have invested in a mutual fund type thinking that the risk would be very low or something that you can manage, but it is possible that the market took a turn and you now are facing risks of high investment low returns. If the investment journey is getting too risky to handle, leave.
So here were the instances when you should enter the mutual funds market and times when you should quit. And now that you know which is which, go on and take the next move. Start or Stop mutual fund investment.