Many people are fearing that the markets are at an all-time high and might crash soon. This may or may not be true. But there are different strategies for different times.
If you are looking to invest a lump sum amount in a mutual fund, timing is important.If you feel the markets are high, a good strategy is to invest the lump sum amount in a debt fund. Debt funds are not as risky as equity mutual funds. Debt funds are also not easily affected by short-term market movements.
Following that, you can then set up an STP (Systematic Transfer Plan) from that debt fund to an equity mutual fund. This will ensure your money is invested in an equity mutual fund over a period of time thus allowing you to take advantage of rupee cost averaging.
Systematic Investment Plan (SIP)
If you are investing via SIP, you do not need to worry about timing the market. In SIP, since you invest a fixed amount every month, over a long period of time, you benefit from rupee cost averaging.
In rupee cost averaging, when the markets are high, you pay a high price for the units of any mutual fund. Then again, when the markets are low, you pay a low price for units of the same mutual fund. Over a long period of time, the price you pay for the units of the mutual fund average out. Thus, you are ensured to not pay a high price for any unit of mutual fund you invested in.
Should I Just Wait?
No, waiting is not a good idea.
When you wait, your money is stagnant and does not grow at all. Instead of not gaining anything at all, you must at least hope for some gain. Ups and downs are a natural part of any market. If you investing for the long term, such ups and downs will not affect your investment much.
If you invest lump sum, using the method written above, your money will be kept in relatively safer debt mutual funds while slowly being transferred into an equity mutual fund. Thus, you will at the very least earn a rate offered by the debt fund you have invested in. If you invest using SIP, then you do not need to worry about timing the market at all as was already written above.