Best Time to Buy & Sell Mutual Funds in India

Mutual funds are one of the most popular investment avenues that appeal to a wide range of investors. When compared to different investments such as shares, real estate, and alternative investments, mutual funds are stable, affordable, and give reasonably secure returns. Despite being a popular investment choice, many don’t know when to invest in and redeem their mutual funds. In this article, we will cover the best time to buy and sell mutual funds in India.

When is the best day to invest in mutual funds?

When investing in mutual funds, the time you stay invested in the market is much more important than timing the market. The sooner you start investing, the higher the returns and the greater will be the wealth you can accumulate. This means the longer you stay invested in the market, the higher your returns will be.

Let’s understand this with an example if you and your sister decide to invest Rs 10,000 a month in a mutual fund until you turn 60. Your current age is 30, and your sister’s is 35. So, each of you’ll turn 60, you would’ve invested for 30 years, and your sister would’ve invested for 25 years. If the expected return is 12%, let’s see how much each of you would’ve made by the time you turn 60.

The above example shows that the longer the investment horizon, the better the returns. By investing just Rs 6 lakhs more, for a duration of 5 more years at 12% estimated returns, you have the potential to make 1.8 times the returns than your sister.

Just imagine what the returns would be if you started investing from the time you were 25 years! Hence, with mutual funds, the earlier you start investing, the higher the wealth you can accumulate.

Is timing the market important to invest in mutual funds?

When it comes to equities, timing the market is important. This is because if you invest at the start of the bull market, you can get higher returns than when you invest in the middle or at the peak of a bull market. Since equity mutual funds predominantly invest in the equity market, having good entry and exit points is necessary. This is because, as the market hits higher highs, the NAV (net asset value) of the mutual fund will also grow, resulting in higher returns for the investors.

However, not all investors have the time and knowledge to time their entry and exit into mutual funds. Hence, it is best to follow certain practices so timing the market can be avoided altogether. Below are some of them.

Take the SIP route

Mutual funds allow investors to invest in regular instalments through the SIP (Systematic Investment Plan) route. With SIP, you can invest a fixed amount at regular intervals such as monthly, quarterly, bi-annually, or annually in mutual funds. You can also pause, cancel, and increase the instalment amount whenever you want. The best part about investing in mutual funds through the SIP route is the low investment. You can start investing in mutual funds with an amount as low as Rs 500 through SIP.

Rupee Cost Averaging

SIPs best work for long-term investment horizons. This means that over a longer period of time, SIPs can help increase returns by reducing the average cost of investment. Popularly known as rupee cost averaging, it means that by investing regularly in mutual funds across different market cycles, the investor’s average cost of investing comes down, which will increase the long-term returns.

So, this basically means that if you invest in mutual funds in an upmarket, the cost per unit increases as the bulls have taken charge of the market. So, for the same amount of investment, you will get lesser units as the per-unit cost has increased. However, in a market downturn, if you continue you invest, you will get a higher number of units with the same amount of investment. This is because the per-unit cost will come down as the bears have taken charge.

Let’s understand this with an example. If you first invested Rs 5,000 in a mutual fund with a NAV is Rs 10, you will get 500 units. However, as the per unit price increases to Rs 20, you will get 250 units, and if the per unit price falls to Rs 5, you will get 1000 units for the same investment. If the price further falls to Rs 2, you will get 2,500 units. However, if you calculate the average cost, it will be Rs 9.25 per unit, which is lesser than the NAV you first invested at. If you had invested the entire Rs 20,000 at Rs 10 NAV, you would’ve gotten 2,000 units. But since you invested through SIP, the number of units you will get is 4,250 for the same investment of Rs 20,000.

Given the unpredictable nature of the market, it is best to average out the cost of investment but regularly invest in the market through SIP.

Start investing early

Investing early in life will ensure you have a longer investment horizon than if you started late in life. This means you will accumulate more money if you start investing money in your 20s rather than your 30s. The primary reason behind this is that you will have a longer investment horizon before you retire, giving your investments enough time to grow. Time is always a friend of investment, the more time, the higher the value of investments. Hence, start early, and invest for a long-term horizon.

Invest regularly and consistently

Although SIPs can be cancelled or paused anytime, you must invest regularly. By investing regularly and consistently, you will inculcate financial discipline and also benefit from rupee cost averaging, as explained above.

Be patient

With investments, the biggest secret is to stay patient. Panicking when the market falls can lead to huge losses. In the short term, the market is very volatile. However, in the long term, the volatility smoothens out, and your wealth will start to grow. Hence it is best to be patient with your investments and allow them to grow to maximize your returns.

Things to consider before choosing the best time to invest in mutual funds

Before investing in mutual funds, there are some parameters you must keep in mind.

• Investment objective: When investing in mutual funds, you must consider your investment goals. When you invest based on your financial goals, choosing funds for your portfolio becomes easy. Be it any goal, for example, buying a car, or investing in higher education, identifying it and aligning it with your investments is important. This is because investing and monitoring these investments will become easy.
• Investment horizon: Next important thing to do is estimate the investment horizon. In other words, in how many years will you want to fulfil a financial goal? By estimating the time period, you can choose the mutual funds for your portfolio. For example, debt funds suit short-term horizons, whereas equity funds suit a long-term horizon goal. Investing based on the investment horizon is important as it allows you to get the maximum potential from an investment.
• Risk: You must determine your risk tolerance levels. It is important to do so because it allows you to determine the asset class you must invest in. If you are a risk taker, equity will best suit you as it is an asset class with the highest risk, but it also has the potential to give high returns. On the other hand, if you are not a risk lover, then the debt will suit you the best as it offers stable and predictable returns. Hence it is important that you analyze your risk tolerance level before investing in mutual funds. You can take a risk profiling questionnaire to determine your risk-taking ability.
• Mode of investing: You can invest in mutual funds through the lumpsum route or the SIP route. If you choose the lump sum route, timing the market is important, whereas if you choose the SIP route, market timing becomes insignificant. If you are a person who gets regular income by way of salary, rent, or through any mode, the SIP route is best suited for you. In case you receive a bonus, you can invest the extra through the lump sum route.

What is the best time to sell mutual funds?

Before investing in any asset class, it is important to have an exit strategy. Now that investing in mutual funds is clear let’s understand when is the right time to sell mutual funds. But before that, you must understand the consequences of selling your mutual funds.

Consequences of selling mutual funds

• Exit loads: Many funds charge an exit load if you redeem your mutual fund units earlier than the stipulated time. The exit load can go up to 1% and will be deducted from the total redemption value.
• Taxation: The capital gains from your mutual fund investments are taxable in India. The taxation rules vary across asset classes. For example, for equity funds, the gains earned within one year of investment are taxed at 15%, and gains above Rs 1 lakh earned after one year are taxed at 10% (gains up to Rs 1 lakh are tax-free). Similarly, capital gains from debt funds are also taxable. Both short and long-term gains are taxable at the investor’s income tax slab rate.

Best time to sell mutual funds

Below are the top reasons for you to exit or redeem a mutual fund.

• Consistent underperformance of the fund: If a mutual fund is performing poorly for more than two years, then it’s time you should cut your losses and sell your units in it. You can compare the performance of a mutual fund with a benchmark or its peers to know if the fund is underperforming.
• Change in fund manager: When you invest in a fund, you are entrusting your money to a person who has the knowledge and expertise. However, if the fund manager of the fund changes, then you must be cautious. If the fund is a passive fund which mimics the index, then a change in the fund manager shouldn’t bother you. However, for an active fund, a change in fund manager can lead to underperformance of the fund. You can observe the fund’s performance for a year to know how the new fund manager is doing before selling your mutual fund units.
• Change in the fund’s objective: When you first invested in a mutual fund, you would’ve aligned your goals with the fund’s objective. If the mutual fund changes its strategy or is investing in securities that are different from the fund’s strategy, then you should rethink your investment in the fund. If you aren’t comfortable with the changes in the fund, then sell your investment in the fund.
• When you reach your goal: It is best to sell your mutual funds and switch to a low-risk fund a few years before you reach your goal. This way, your investment strategy won’t be hampered, and you will have enough money to fulfil your goals.
• Portfolio rebalancing: Due to market fluctuations, your portfolio asset allocation also fluctuates. The asset allocation can also vary based on your age and personal situation. To maintain the asset allocation of your portfolio, you must rebalance your portfolio. This means selling some investments and buying other investments to maintain an ideal asset allocation strategy.  
• Tax loss harvesting: To cut taxes on capital gains of other assets, you can sell the mutual fund that has losses. This is called tax loss harvesting and is a popular method of cutting losses and reducing taxes on capital gains.

Conclusion

When it comes to investing in mutual funds, timing the market should be the least of your concerns if you go with the SIP route. The horizon you stay invested in is much more important than timing the market. Other important things to consider before investing in mutual funds are your goals, risk tolerance levels, and investment horizon. Similarly, when you exit the fund, timing is less important than the exit strategy. As investors, you must have an exit strategy for your investments. This will ensure you can maximize your returns from your mutual fund investments.

Frequently Asked Questions

What is the best time to do a lump sum investment in a mutual fund?

Anytime is a good time to invest in mutual funds through SIP or the lumpsum route. Before investing in mutual funds, you must check your investment horizon, goals, and risk tolerance levels, and not the timing of the entry.  

When not to buy a mutual fund?

Mutual funds are the most popular investments in the market. You shouldn’t invest in mutual funds if the fund is underperforming the market and its peers and it isn’t suiting your goals and risk tolerance levels.

Should I invest in SIP now?

If you haven’t already started investing in mutual funds, now is the right time to invest through the SIP route. This is because the earlier you start investing, the longer will be your investment horizon, and the higher the returns will be.

Is it safe to invest in Mutual Funds for 25 years?

Mutual funds are long-term investments, and equity funds have the potential to give good returns in the long run. However, mutual funds are marketable securities, and their returns depend on the market. So, it’s best to monitor your investments from time to time, even if you choose to invest for 25 years.

What is the best day of the week to sell mutual funds?

Mutual funds can be sold on any day of the week. However, before selling them, you must consider the exit load and taxes. Sell your mutual funds only if you’ve reached your goal, there is a change in the fund’s strategy or fund manager, or the fund is underperforming.

Can mutual funds be sold on Sunday?

Yes, you can sell your mutual funds on Sunday. However, orders placed on Sundays, Saturdays, or public holidays will be considered as orders placed on the next business day and will be processed accordingly.

Can we sell mutual funds before maturity?

Mutual funds have no maturity period as they are the most liquid investments. You can redeem them any time you want, and there is no restriction on them. Only ELSS or tax-saving funds have a lock-in period of 3 years.

How long should you hold your mutual fund’s investment?

You should hold your mutual funds until you fulfil your goals. However, you must do periodic reviews once a year and rebalance the portfolio if necessary.

Can we sell mutual funds before the lock-in period?

Only ELSS funds have a lock-in period of three years, and you can’t sell them before the lock-in period ends. Rest all mutual funds do not have a lock-in period and can be sold anytime.

Written and Reviewed by:

Priyanka Rao

Author

Priyanka Rao is a content strategist for Jupiter.Money, and specializes in writing on topics related to finance, banking, budgeting, salary & wages, and other financial matters. She has a passion for creating engaging content that resonates with audiences across various digital platforms. In her free time, Priyanka enjoys traveling and reading, which allows her to gain new perspectives and inspiration for her work. With a keen eye for detail and a creative mindset, Priyanka is committed to creating content that connects well with her readers, enhancing their digital experiences.

Vivek Agarwal

Financial Content Reviewer

Vivek Agarwal is a dynamic leader with deep expertise in investment platforms and wealth management. At Jupiter Money, he spearheaded the Investments vertical, building in-house solutions for direct mutual funds, digital gold, and fixed deposits, scaling the platform to over 200,000 customers. He was an early adopter of SEBI’s Execution-Only Platform (Category 1) and managed key operational, compliance, and customer service functions.

Previously, Vivek co-founded Upwardly, a robo-advisory wealth management platform offering tailored investment and insurance solutions. As Chief Investment Officer, he pioneered dynamic asset allocation, goal-based investments, and motif-based portfolios. After Upwardly's merger with Scripbox, he led the integration of independent financial advisors into Scripbox, transitioning assets under management and customer relationships seamlessly.

His strategic leadership extended to setting up corporate treasury services for startups and MSMEs, and establishing verticals in insurance and bond sales, including Sovereign Gold Bonds. Vivek’s diverse experience and strategic vision continue to shape the financial services landscape in India.