Should you invest in Mutual Funds when share markets are down? (2024)

FAQs

Should you invest in Mutual Funds when share markets are down? ›

As fund managers say when the market is down, a sale is happening. You will get stocks at attractive valuations. If you are a long-term investor and investing in line with your goals and risk profile, you should not worry about ups and down in the market.

There is no better time to start investing. It is very difficult to time the markets and although the markets are due for a correction, it would not be wise to wait further. Also, when it comes to SIPs, there is not much merit in timing the markets. We would suggest you invest in different mutual fund categories.

By continuing to buy shares when the market is down, you may lower the overall price you pay per share and position yourself for growth when stocks inevitably recover. But remember: This recovery isn't instant. It may take months or even years.

While market crashes inevitably impact mutual funds' performance and pull them down, as an investor, you need to remain patient and avoid exiting your investment. If you redeem your investment during a market crash, you essentially convert your notional losses into actual ones.

What is the best time to invest in Mutual Funds? There is no rule of thumb or fixed criteria to state the best time for investing in mutual funds. While a bear market may look like an ideal time to invest in mutual funds, the identification of a bear market entirely depends on the expertise of the fund manager.

“The benefit of investing in dividend-paying stocks, mutual funds or ETFs is that the dividends can be reinvested. Even if the value of your stock is down because of the conditions, the reinvested dividends lower the volatility,” Cheng explains.

Impact of Stock Market Movements on the Mutual Funds

When the stock market is crashed, the investors face huge losses due to the falling prices of the shares they have purchased. Mutual fund too invests in the stocks and shares traded in the exchange, and thus the values of the funds are also reduced.

If you are a short-term investor, bank CDs and Treasury securities are a good bet. If you are investing for a longer time period, fixed or indexed annuities or even indexed universal life insurance products can provide better returns than Treasury bonds.

No, you shouldn't sell your mutual funds before a recession. Even if you're uncomfortable with the market price decline, overreacting and selling mutual funds at a loss when there is a market drop or recession isn't a sound strategy. It's best to set aside cash for use during recessions and before a market downturn.

Where is your money safest during a recession? ›

Cash equivalents include short-term, highly liquid assets with minimal risk, such as Treasury bills, money market funds and certificates of deposit. Money market funds and high-yield savings are also places to salt away cash in a downturn.

Choose Bond Funds

Bonds are traditionally considered one of the safer investment vehicles because they provide returns of principal and guaranteed interest payments each year. When it comes to protecting your mutual fund investment from economic unrest, government-issued bonds are even safer than corporate bonds.

We recommend a buy-and-hold strategy when it comes to investing. The stock market is like a roller coaster. There are going to be ups and there are going to be downs—the only people who get hurt are the ones who try to jump off before the ride is over.

There is no "best time to invest in mutual funds”. Mutual fund investments are not subject to any time restrictions or modalities. This suggests that you can invest whenever you like and in whatever way you like. For instance, you can invest in a lump sum if you have a fund corpus.

All investments carry some risk, but mutual funds are typically considered a safer investment than purchasing individual stocks. Since they hold many company stocks within one investment, they offer more diversification than owning one or two individual stocks.

One may also consider investing in safer assets. Divert some of your investments to less volatile assets like debt funds or gold while maintaining exposure to equities. Expand your portfolio to include different asset classes and sectors to mitigate risk and volatility."

As mutual fund investors are invested for longer terms, data from past market crashes show that temporary declines in stock markets do not have a very big impact on their returns in the long term. For instance, there was a 38% absolute fall in the markets during the 2020 Covid Crash (see chart below).

There is no specific date of the month that gives better SIP returns. So, your own convenience should be the only determining criterion. For example, if you are a salaried person and receive your monthly pay at the end of the month, then you can plan your SIP in the first week of the following month.

There is no best time as such for investing in mutual funds. Individuals can make investments in mutual funds as and when they wish. But it is always better to catch the funds at a lower NAV rather than higher price. It will not only maximise your returns but also lead to higher wealth accumulation.