How to invest in mutual funds

In some articles, someone tells us that a Systematic Investment Plan in a bull market is not a wise move.
In another, someone tells us now to time the market but to keep investing equal amounts every month.

Recently, one analyst told me not to invest in HDFC Top 200 via a SIP because the Net Asset Value is way too high now. He suggested SBI Blue Chip fund.

At the same time, you always drive the point home not to invest to any new fund.

Hope you understand my dilemma. Please tell me what I should do.

- Arindam Mukherjee

Please don't get confused.

Our viewpoint on mutual fund investments is simple and straight-forward. What we always say is that since you cannot predict the stock market, the best way out is to stop thinking where the market will be next month or next quarter. Instead, keep investing small amounts regularly.

This way, you will end up buying into equities at higher as well lower levels of the markets over the course of time. And your cost per unit will get averaged out, rather than being very high or very low.

Undoubtedly, an investor will definitely make more money if he buy his shares or mutual fund units just before the start of a bull run. And sell at the peak of the bull run.

But there is no way to know when a bull run is about to get underway. Can you predict how the markets will behave in the next three months? If you can tell for sure that they will go up, then go ahead and invest your last penny in the markets. Unfortunately, neither you, nor anybody else, can predict the direction of the markets.

Therefore, it is better not to commit a large sum of money to the market at a particular point of time, but keep investing small amounts regularly.

As regards your second query, please bear in mind that the NAV of a fund has absolutely nothing to do with its future prospects. An equity fund can never in itself be over-valued or under-valued. It will only reflect the value of its shares. Read Don't get fooled by new funds to understand this better.

Therefore, just worry about the high NAV of a fund. Choose funds on the basis of their investment objective and long-term performance record.

In this regard, HDFC Top 200 scores better than SBI Bluechip. The former has a good performance record and is managed by some of the finest fund managers of the country. But SBI Bluechip is very new and there is hardly enough performance history to base your investment decision upon. Read How to compare mutual funds.