Probably the most common question on all equity investors’ minds is–What is the right time to invest? The answer is also something that everyone knows very well–Buy low and sell high. Someone who invests in equity mutual funds or someone who trades directly in stocks should follow this principle. You stand the best chance of earning a profit or earning higher returns when you purchase something for cheap and then sell it for more. This is a rule that is simple enough to follow, but somehow, equity mutual fund investors seem to be doing the opposite.
Equity investments on downward trend
A look at the data released by the Association of Mutual Funds of India (AMFI) reveals that net inflows into equity mutual funds in January 2016 was the least in the past 20 months. The figure stood at Rs 2,914 crores for the month, which included tax-saving mutual funds.
Why are people not investing in equity?
The reasons behind the decreasing inflow in equity mutual funds are obvious enough. The markets have been have a freefall for the past few months. The Sensex has fallen by 8% in the past 3 months and the Nifty by almost as much: 7.8%. The situation in China has also raised concerns globally. Club the drop in oil prices with all of this and you understand the concerns that Indians are having while investing in equities.
On a micro level, these concerns are justified but not on a broader, long-term level. The fact remains that while the Indian economy will continue to get affected by global factors on a short-term basis, we are poised to do well over a longer period. Put that into perspective with the ‘buy-low-sell-high’ philosophy and you have an answer to the question about when is the best time to invest in equities.
Now is a good time to invest in equities
Timing the equity market is never a good idea, but now is definitely not the right time to stop your investments. More so, your systematic investment plans in equity mutual funds. In the first place, SIPs help you to average out your cost of purchase by allowing you to invest at different levels of the market. An SIP that is running now would translate into substantial gains over a period of 5-10 years.
What is most alarming about the trend of declining investments in equity funds is that ELSS funds are also a part of it. The last quarter of any financial year is when most tax savers rush to make their 80C investments. This usually leads to a spurt in inflows into tax-saving funds. That clearly hasn’t been the case in January. But all is not lost if you’re reading this. A volatile equity market might not look welcoming, but if you ride out the rough weather you will can expect your investments to turn lucrative. ELSS funds come with a lock-in of 3 years anyway, which would be the best way to not only save taxes but invest for the long-term. Let’s hope the trend reverses in February and you’re a part of it.