The markets have come down a lot since January. Is this a good time to invest lump sum in a fund whose NAV is down?Asked
Mutual funds are subject to market risks.
The markets have witnessed corrections post January. This volatility is what makes investing in equity and for that matter mutual funds, risky.
Firstly, it is imperative to understand that such volatility is a regular phenomenon. In the long run, the volatility in general and corrections in particular get ironed out.
What this signifies is that, the investors must not try to time the market.
Now, as the markets have corrected a lot from the highs of January, investors may look to make use of this opportunity by investing now (in the expectation that the markets may rise soon).
With the given objective, it may be a better idea to invest in mutual funds via Systematic Investment Plan or SIP, than invest via lump-sum.
The reason being that it is not certain that the markets could not correct further. If that happens, investment via lump-sum would not work well.
However, investment via SIP would overcome this problem due to the benefits of rupee cost averaging. As the fund is able to pick/ buy units at different prices (both high and low), volatility is overcome.
When an investor chooses to invest via SIP scheme, even if the markets fall, the scheme is able to pick up more units with the same investment amount and vice versa. Whatever may be the course of the market, the investors stand to gain.