Question

Name: Ibrahim, the _Day/Time: 626-7:00 Score: 1. Is it the right time to buy mutual funds when the markets (eg. Stocks, fixed income, derivatives) are too high? Explain your answer 2. is buying and selling of mutual funds shares same with buying and selling shares of stocks? Where and how do they differ? Discuss your answer. 3. When do you think is the best time to redeem your mutual fund shares? Explain your answer. 4. There are two ways by which an investor can invest in mutual funds-one being lump sum investment and the other being the systematic investment plan (SIP). Which one would you prefer and why?

Answer 1

(1). There is not best, good or worst time for investment in MF's. If we think markets are today high may be tomorrow a good news come and it will increase the prices further, so we can't say that tomorrow will be low for investing.

There is a saying : “The best time to invest was YESTERDAY, the next best time is TODAY and the worst time is TOMORROW.”

So, we should not wait for the best time to come for investing, because if investment should not be considered for short durations it is for long period of time. Today the stocks or the NAV of fund in which we are investing is 40 but after one year or two it will definitely change it can go down or up depends on the market situations demands and supply forces.

(2). To anwer this first we should undestand the types of mutual funds, basically if we talk about the entry and exit of the MF's there are two main types. Open ended Funds and Closed ended funds.

In open ended funds we can buy and sell our MF units whenever we want because there is no maturity period of these types of funds and the fund itself buys the units we sell, but in closed ended funds if we want to sell the fund units before the maturity of the fund we will have to list these units on stock exchanges and the units that we list will trade for real time, so if a person want to buy these units they will have to buy these from stock exchanges not from the funds.

So we can say that buying and selling of MF units after the NFO of closed ended funds are very much identical to buying and selling of stocks if we consider the loads as a commission for stocks.

(3). If we want to redeem mutual fund shares/units it would be good if we redeem at the price above which is paid to buy the shares. More of this depends upon the individual needs. Any investment has its own needs and expectations in the future, if current prices are above and meeting our goals then it is good to exit from the investment.

Because any investments seeks an expected returns on the investment made. So if we had brought shares of MF at $50/unit or shares and not it is now trading at $60/ unit and it is meeting our investment goals then it the good time to exit from the investement.

(4). SIP Vs lumpsum

Parameters	SIP	Lumpsum
Cashflow	Regular	One time
Continuously growing market	Less recommended	More recommended
Falling NAV	More recommended	less recommended
Required risk appetite	Low to moderate	Moderate to high
Time of investment	Quite immune to the volatility of the market	Depends a lot on market conditions
Uncertain future income	Not recommended	Relatively recommended
cost of investment	Less due to the rupee cost averaging	High as it is one time large investment

So, if we see the above table there are many parameters to judge on both we can't simply say that SIP is best to invest or not. We should analyse conditions for both the types and our goal from the investment, then only we can say which is good to invest.