The answer to this question depends on the following criteria:
1) the rating and performance of mutual fund you are investing into
2) the amount of risk you are willing to take
Depending on the above factors let's go ahead:
1) the performance of mutual fund you are investing into makes a lot of difference since a lot of research needs to be done before investing.
i) how that particular fund is diversifying its assets since many of funds are sector funds and some others put a lot of money into one sector like banking/finance.
ii) But if that particular sector doesn't perform well in the long term you would end up losing your money
iii) Some sectors like FMCG (HUL, Dabur) or automobile like Maruti Suzuki(because of innovations it brings in) almost make profits throughout the year and hence it's very advantageous to invest in them for long-term in these sectors. Investment time: more than 3 years.
2) The amount of risk you are willing to take
i) It is important since if you want to invest in low-risk funds, debt funds will be the best option(moderate returns, low risk) investment time period: less than 1 or 1.5 years
ii) But if you want high returns, more diversification equity mutual funds will be the best since higher the risk, more will be the returns.Investment time: depending on the performance of fund (on an average 4 or greater than 4 years)
iii) For a balanced portfolio, you may invest into balanced mutual funds where there is a combination of both equity and debt mutual funds which will again help you to invest for a good duration like less than 2-3 years.
Let me start off by saying that it is always a good time to start investing in Mutual Funds to meet your financial goals. Historically, model investors have invested in mutual funds, specifically Systematic Investment Plan (SIP), both when the market is bullish, meaning it is rising and reaching new highs, and when the market is bearish, meaning it is falling and reaching new lows. The rationale behind this is that in a bullish market, the returns on the portfolio will tend to be higher and during a bearish market, the investor will be allocated more units in the fund - which will later lead to higher returns. This strategy also brings down the average cost per unit of a unit in the said fund, thus serving as an effective risk management tool.
The investment decision should be made after according due consideration to various factors like age, financial goals, investment horizon, risk appetite, etc.
Mutual funds can broadly be classified into the following types:
(a) Debt Schemes
(b) Equity Schemes
To invest in debt schemes, there is no particular time, and investment can be made without studying the market. They typically provide returns in the range of 6% to 10% and are considered to be the least risky type of mutual funds.
To invest in equity schemes, it is preferable that your investment horizon is long term, say over 3 years. This is because the equity stock market is extremely volatile and the value of your investments can fluctuate on a daily basis. However, over the long run, there is a greater probability of earning better returns in equity schemes due to the simple principle of Higher Risk, Higher Return.
Thus, though it is always the right time to start investing in mutual funds, depending on various variables the type of mutual fund to be selected for investment will change.