Is it the right time to invest in funds?

Doesn't the success of equity mutual funds depend on the overall stock market?

If yes, when must one invest in the funds? Take the current scenario. The Sensex has peaked and share valuations are at all time highs.

- Nalinikanth

First of all, you are right when you say that the success of mutual funds depends upon the stock market. The tremendous returns that equity funds have generated over the past two years would not have been possible without the ongoing bull run.

Coming to your question, the ideal time for one to invest is obviously when the market is at a much lower level.

However, it is not possible to predict in advance as to whether the stock market has peaked or will still rise to greater heights.

Maybe the Sensex has peaked or may keep rising for the next few years, scaling greater heights.

The best way out is to keep investing regularly without worrying too much about the market level.

What you need to do is to start shifting the money gradually to safer avenues, like debt funds (mutual funds that invest in fixed return investments). This ensures that you are not robbed off your gains if equities take a plunge at the very last minute. And if it keeps rising, then you can keep selling equity gradually at higher levels.

An ideal investment plan should be the one that works for you irrespective of whether the markets are at 10,000 or at 2,000.

Leave the job of deciding whether the stock market has peaked or not to the fund manager. If he feels so, he may start increasing the cash component himself in order to protect your returns.

• Alternative to your savings account

I am a 22 and began working this year.

I have been able to save around Rs 1,00,000 which is lying in my savings account. Where can I invest this money for around eight months?

- Abhinav Behari

For the short term, floating rate funds would be suitable.

These funds invest in debt instruments carrying a floating rate of interest (which means the rate of interest offered by these instruments keeps getting adjusted according to the interest rate changes in the economy).

Over the last year, floating rate funds on an average have delivered around 5.5% per annum.

• Want to invest in a large-cap fund?

I would like to invest in a high-risk, high-return mutual fund. I am also looking at a three to five year investment period.

Since the market is already booming, is it the right time to invest?

- Lenin Babu

Your concerns about the market being in the middle of a tremendous bull run are right. But the fact remains that nobody can say for a fact as to how long this bull-run is going to last.

Therefore, investing through the Systematic Investment Plan mode, as has been always recommended, remains the best option. You can go for diversified equity funds.

Don't bother too much about the stock market level. Over the long term, an SIP will balance out the highs and lows. What's important is not to lose your patience and act in haste during the volatile phases of the market.

Do check the response we have given to Nalinikanth's question above.