Typically when markets go down, people start panicking and start selling their shares or units of mutual funds.
There is another set of people who ask if that’s the right time to invest in stock markets or mutual funds?
Well, the idea of investing when markets are down has got some merit. You get to purchase more number of shares or more number of mutual fund units when markets are down. Hence, you will acquire more for less and when the prices rise, you will make more profits.
There is nothing wrong in the plan, right?
Well, the thing to be concerned about is what happens if the market go down even further? It’s very much possible. You can’t predict markets. Timing the market is not easy. Nobody can predict the market movements. Hence, instead of focusing on timing the market, one should be disciplined and should keep on investing in equity mutual funds irrespective of the market fluctuations. In the long term, these short term fluctuations do not affect your investments. With overall growth of the economy in long run, the equity markets also grow absorbing all the short term fluctuations.
So, you should also invest in Mutual Funds when the markets are relatively down, and not just invest when markets are down as what you will never know for sure whether the markets are temporarily down or they are going to dip even further? For these reasons, Systematic Investment Plan (SIP) is highly recommended mode of investments in equity mutual funds. You should focus on your day to day work and let your money work for itself. Tracking your long term equity mutual fund investments on daily basis is not going to help :)
And how about investing in Mutual Funds when markets are up?
Well, the answer to it remains the same. You just don’t time the market. Be disciplined and keep investing. What seems high today might seem to be lower tomorrow if the market goes up even further. Some people fear that markets will crash if they are at all time high and hence they should not invest at that time. As long as you are investing money systematically in all market conditions, you should be fine in long term.