How to invest in mutual funds when markets are at all time high?

Investing in Mutual funds, when markets are at all time high should not be worrisome if you follow basic guidelines

A Bull Run in Indian Stock markets

In last 5 months, Sensex has gained almost 14% in absolute terms and in between this run it touched the all time high of 29,974, just a bit short of 30K mark. As of 21st April, the market is at 29365, fairly high when compared to 25,765 on 21st November.

The question on every investor’s mind currently is, should I invest in the current market when it is scaling new highs every now and then? Let us first address that if the markets are really on a high. To check that, we will look into the Price to Earnings (P/E) ratio of Sensex.

P/E ratio is the ratio of the market price of a stock or index to its Earning per Share.

The current P/E ratio of Sensex is in the range of 22-23, which means the market indeed is overvalued since the P/E of a fairly valued market is around 17-19.

So, should I refrain from investing in mutual funds in this bull market?

The answer to the above question is not simple. Timing the market is next to impossible and is not advisable; however, one can take steps to reduce the risks associated with the fluctuations in the market.

SIPs to the rescue

The best solution to remain free from the anxiety of rising & declining markets is to invest in a SIP (Systematic Investment Plan) of a Mutual Fund. Investing in mutual funds through a SIP takes care of market highs and lows by averaging them out and lessen the risk while providing decent returns.

If you are already an investor then let your SIPs run and continue taking advantage of the rupee cost averaging.

How about lump sum investing in mutual funds?

If you have a lump sum to invest then take the STP (Systematic Transfer Plan) route. STP transfers your chosen amount from one fund to another in a periodic manner wherein the period could be Monthly, Quarterly etc. as decided by you. We suggest that you park the lump sum in a liquid fund which will give you 6%-8% return and use STP to transfer the money to an equity fund and average out the risk of investing in a high market.

Goal based strategy

The stock market is cyclical, it will keep having highs & lows but in the long term (10 years or more) the returns have been almost similar despite the market condition at the time of making the investment. Hence, do not alter the strategy for your long term goals, such as Retirement planning and continue with your investments and ongoing SIPs.

  • For any immediate goal (i.e. less than 3 months), invest in Liquid funds as many of them have the feature of instant redemption.
  • For goals which are up to 1 year away, you may look into investing in ultra short term funds.
  • For goals which are 1-3 years away, choose from the debt funds available as they are less volatile than equity funds.
  • For goals set for next 3-5 years, choose Balanced funds which have the lower risk than Equity funds and better returns than Debt fund.
  • For the goals having a horizon of more than 3 years choose from the Equity fund categories of Multi Cap, Mid Cap, Large Cap etc. based on your risk appetite.
SIP is the best way to remain free from the anxiety of rising & declining markets. Click To Tweet

Which funds should I opt for when mutual fund market is hitting all time high?

Choose the funds which have done well overall and have a good track record of beating the benchmark even in a bear market. For example, Birla Sun Life Frontline Equity Fund has beaten the benchmark and the peer funds in the category for last 10 years.  You may check the best funds in different categories in the easy to use ‘Top Funds’ category of our app.

Should I book my profit?

If your investment goal is completing in near future, i.e. in next 6 months or so, then you should book the profit and invest the proceedings in a liquid or ultra short term fund. For all other goals, continue with your investment & SIPs.

To summarize, the markets are on a bull run but you have to stick to your plans and continue to keep investing through SIPs and be free of any worries of market fluctuations.

Do check our website to know more about WealthTrust. Do read our other blogs on mutual funds here.

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2 Comments on “How to invest in mutual funds when markets are at all time high?”

  1. I am a student and want to invest in lumpsum of RS 5000 or in sip . I want to earn more than FD and at the same time with LOW. Risk for the min tensure is 3 monh and Max is 1 year please guide me.

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