The right time to invest in equity funds is whenever you want it to be and that is the benefit of mutual fund investing. There is no right and wrong time to invest. You cannot time such decisions. The right time to invest in equity funds is when you think you are ready for it. Equity mutual funds are an assortment of many stocks. Timing the market with respect to each and every stock the mutual fund holds will be difficult and a cumbersome process and is also not the right way to pick funds as well.
There are various other reasons that should support your decision to invest in equity funds at just the right time. We will scan this question of when is the right time to invest via different lenses.
Research: The right time to invest in equity funds is when you have some research handy.
You should know how equity funds work, the different types of equity funds available in the market, the different asset management companies (AMCs) and funds available in these categories and the parameters that are required to compare one fund from another. When your research is up and ready, you can then make an informed decision and you should only make an informed decision. Hence, the right time to invest in equity funds is when you are informed enough to make that decision. You can also research how the fund ranks against its peers within the same mutual fund category. For example, Parag Parikh long term Equity Fund is a multi-cap fund and is currently at the topmost position in its category (multi-cap). This will give you a clearer understanding of the different mutual funds.
Goals: The right time to invest in equity funds is when you know why you are investing, when will you need this money and why?
You can differentiate your goals between long term and short term goals and it is not that difficult to do that. Say you know you have to go for higher education in the next two years, it automatically becomes a short term goal. Or say you want to buy a house in the next 7-10 years, that becomes a long term goal. If you are planning to have children in the future, then their education and other expenditures become long term goals. Retirement too is a long term goal. You can then invest accordingly. Equities generally are long term investments so you should avoid equity funds for short term goals wherein you will need the money in two years. There are chances your investment may be negative within two years.
With equities, you need to keep your investment in its place for a longer period of time to let returns on your investment show up. Hence, once you know what are your goals and you can answer the question: why am I investing, then it is the right time to invest in equity mutual funds.
Risk Appetite: The right time to invest in equity funds can be any time but which funds you choose depends on your risk appetite.
If you have a low-risk appetite then you can take some time, conduct some research and homework and you can slowly move towards building a risk appetite for equity funds. However, within equity funds as well, there are options for investors belonging to all risk appetites. If you have a low-risk appetite but enough for equities as an asset class, you can begin with large-cap mutual funds and then spend some time to understand the small-cap and the mid-cap market. At times, or probably most of the time, small-cap and mid-cap returns are higher than large-cap but their risk level is also higher. Sectoral equity funds too have a high-risk appetite but may serve a good purpose in the long run. For example, Nippon India Pharma Fund, which is a sectoral fund is considered to be risky and will be extremely volatile in short periods but had you invested in the fund a few years back, you would be earning skyrocketing returns now.
Lump-sum or SIP?
In case you have arrived at a decision with respect to when you should invest, you might be confused between lump-sum investment or SIP. If you are a new investor you can begin with SIPs and invest as low as Rs 500 per month to get used to equity funds and investing in general. In fact, when the markets are trading lower, it is a good time to raise your SIP contributions or start a new one because you end up adding more number of mutual fund units for your investment value.
Therefore, the right time to invest in equity mutual funds is when you know about equity funds, you know your risk appetite and have an idea of your personal goals. And this can be done at any time, with little time spent on self-introspection on knowing who you are as an investor. You can go to any popular new age platform to see the best equity mutual funds category wise and then do your own research to back the selection. You should also remember to revisit your goals and risk levels after you set it for the first time. Generally, the risk tolerance of people falls as they age and goals may also change. Accordingly, your investments will have to change.