So, the markets are high and you want to make your move by investing in equity funds? That can be beneficial for your portfolio, yes. But before you go ahead and make any rushed investment decisions, here are some helpful things to keep in mind.
1. Avoid timing the market
When you are investing in a mutual fund, you should not try to use the strategy that traders use in the stock market, which is to buy low and sell high. So, if you are concerned that since the markets are rallying now, a correction is inevitable, remember this: timing the market is a futile activity. It may lead you to place excess emphasis on short-term market fluctuations instead of the mutual fund investment’s fundamentals and long-term performance potential. The thing about the price volatility in the stock market is that it is often temporary and over a long-term investment horizon it tends to iron out.
2. Look into the fund’s long-term performance
If you look at the current or most recent performance of a mutual fund when the markets are doing exceptionally well, you may not necessarily get a real picture of the fund’s performance. Instead, you should look at the 1-year, 3-year, and 5-year performance of the mutual fund investments you are considering. How a fund has performed in the past when the markets were down may tell you a lot more.
3. Read up on the fund manager
The fund manager, their experience, and how they rebalance the portfolio given the market highs and lows are important points to consider. That’s because the fund manager is responsible for crucial decisions of what underlying securities to buy and sell and when to maximise the fund’s returns. So, the markets being high won’t benefit you all that much if your mutual fund investment manager is not making the most of it. Hence, make sure to look into the fund’s manager and how they have previously managed the fund given different market scenarios.
4. Consider opting for SIPs
When the markets are high, you should opt for investing in mutual funds through the Systematic Investment Plan (SIP) mode. That’s because SIPs help with rupee-cost averaging. What this means is that instead of making investments based on what the current market price is, you invest a certain amount of money consistently in regular intervals. This helps buy more mutual fund units when the price is low and fewer units when the price is high, which helps average out the price of each unit deriving more value out of your investment.
5. Examine your portfolio
The markets performing well is one thing, but you should also assess your current investment portfolio. How are your current investments aligned with your financial goals and your risk tolerance? What does your portfolio need more exposure to? Based on that you can make more strategic mutual fund investments by choosing the right type of equity funds.
When the markets are high and most equity mutual funds are generating good returns, it’s common for there to be this over-optimistic or euphoric sentiment in the market. What’s essential to remember is that the market rally is going to end at some point, and you should not sway away from your overall investment strategy and make emotional decisions.