0

I'm planning to invest in a mutual fund. The tricky part is that it's NAV is quite high these days, almost close to its 52 week high. In this scenario, does it make sense to buy a this fund in bulk or start a monthly SIP?

I've heard lots of advice that SIP is the best route to mutual funds, and additionally since this fund is doing good now, I feel that I'll be getting only a few units for every bit of money I put in. For some reason, though, the financial planner is advising me to invest in bulk one time instead of a SIP and I am skeptical.

  • 2
    He wants the fees, I should assume. Time to change your financial planner. – DumbCoder Sep 18 '14 at 16:11
1

This decision depends upon a few things. I will list a couple:-

1.) What is your perception about financial markets in your time span of investments?

2.) What kind of returns are you expecting?

3.) How much liquidity do you have to take care of your daily/monthly expenses?

1.)If your perception about financial markets is weak for the near future, do not invest all your money in a mutual fund at 1 time. Because, if the market falls drastically, chances are that your fund will also lose a lot of money and the NAV will go down. On the other hand, if you think it is strong, go ahead and invest all at one time.

2.) If you are expecting very high returns in a short time frame, then SIP might not be a very good option as you are only investing a portion of your money. So, if the market goes higher, then you will make money only on what you have invested till date and also buy into the fund in the upcoming month at a higher rate( So you will get less units).

3.) If you put all your money into a mutual fund, will you have enough money to take care of your daily needs and emergencies? The worst thing about an investment is putting in all what you have and then being forced to sell in a bear market at a lower rate because you really require the money. Other option is taking a personal loan(15-16%) and taking care of your daily needs, but that would not make sense either as the average return that you can expect from a mutual fund in India is 12-13%.

To summarize:-

1.) If you have money to spare and think the market is going to go higher, a mutual fund is a better option.

2.) If you have the money to spare and think that the market is going to fall, DON'T DO ANYTHING!.(It is always better to be even than lose).

3.) If you don't have the money and don't know about markets, but want to be part of it, then you can invest in an SIP because the advantages of this are if the market goes high, you make money on what you've put it, and if the market falls, you get to buy more units of the fund for a cheaper price. Eventually, you can expect to make a return of 14-15% on these, but again, INVESTMENTS ARE SUBJECT TO MARKET RISK!

Please watch the funds average return over the last 10 years and their portfolio holdings.

All the best!:)

PS:- I am assuming you are talking about equity funds.

|improve this answer|||||
  • -1 for "the average return that you can expect from a mutual fund is 12-13%." Unrealistic, unsupported claim. While there are good points in your answer, I can't agree with your average return claim. – Chris W. Rea Sep 18 '14 at 23:04
  • Hello Chris,12-13% in India is not unrealistic, as money lying in a deposit would fetch you 9-10%.My answer is based on the average return on the top rated CRISIL funds in India over the last 5 years. The data can be found here moneycontrol.com/mutual-funds/performance-tracker/ranks/… . I understand that you can have your personal views, but nobody would invest in mutual funds if returns were less than 10% in India. – user19894 Sep 19 '14 at 18:08
  • The only mention of "India" on this page was in your comment. Suggest you edit your answer to incorporate your assumption, because for many other markets expected returns at that level are unrealistic. If you are going to make assumptions, best to make them explicit. People from all over the world visit this site. Thanks. – Chris W. Rea Sep 19 '14 at 19:02
  • My bad. Sorry. Will edit it:) – user19894 Sep 19 '14 at 19:27
2

The tricky part is that it's NAV is quite high these days, almost close to its 52 week high

You will find, if you look historically, most markets are often close to their 52 week or even historical highs.

This is an important consideration. "The markets are at their all-time high!" has been true a large percentage of the past decades.

Everyone wants to buy low, sell high. But the reality is, buying low often will be "buying at close to the highest point" as no one has a crystal ball.

|improve this answer|||||

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.