Turbulent markets often cause investors to rethink their investment in equity mutual funds. In times like this, investors tend to make financial decisions by trying to time the market. When the markets are rising, the common sentiment is to purchase more units, whereas during a market downturn, the pessimistic sentiment induces panic selling of mutual fund units.

But the fact is, no one can accurately forecast the market movement. This is because economic, political, social, and other factors that affect the stock market are highly unpredictable. Markets may continue to rise even if it is overvalued, and/or it could prolong its fall even after huge corrections.

Consider this; the Sensex reached its all-time high on June 3, 2019 on post-election results rally as people were happy with a stable government at the Centre. Investors expected the market rally to continue on the hope that the government will resolve the issues ailing the economy. But a month later, the market started witnessing a severe crash because people were unhappy with certain provisions announced in the budget.

Shifting from one fund to another or selling/stopping your investment when the markets are low can expose you to losses and a deviation from achieving your goal.

[Read: Why Discontinuing Your SIPs Now May Be a Bad Idea]

On the other hand, during a bull run, if you go overboard and buy more funds, it could be a grave mistake because without proper research and evaluation of your needs, you may end up with a non-performing fund.

Furthermore, if you keep delaying your investment due to unfavourable market conditions, your money would just lie idle and the opportunity cost will be high. This means that instead of waiting for the right time if you start investment in mutual funds at the earliest, you will benefit from a higher corpus and better returns.

How should investors plan their investment?

Investment in equity mutual funds via systematic investment plan (SIP) is an ideal tool to achieve your long-term goals. They have the potential to generate higher returns than other investment avenues and thereby build a bigger corpus for your financial goals.

For investors in equity mutual funds, what matters is `time in the market' and not timing the market. Mutual funds should not be traded as stocks because they are long term investment instruments. So, instead of timing the market, one should invest a fixed amount regularly through the SIP mode of mutual fund.

Investing regularly ensures that you automatically purchase more units when the NAV is lower and less units when the NAV is higher. This will save you from the worry of timing the market. As you purchase more when the price is low, you are rewarded with higher returns over a period of time.

Mutual fund investments being market-linked are not risk-free and there may be some setbacks every now and then. But investing via SIP can tackle volatility to an extent and mitigate the risk involved.

It is important that you stick to your original investment plan and not get bothered by market noise. Timing your investment can prove harmful to your financial goals and you may end up with an average or below average returns. Frequent churning of your portfolio can expose you to higher investment cost as there are loads and taxes applicable on every transaction.

[Read: Why Bet On High Alpha Funds In This Gloomy Market]

Equity investments take time to grow and generate meaningful returns. Therefore, if you have a short investment horizon, you can opt for liquid/short duration debts and/or bank deposits.

It may not be easy at times to ignore the market ups and downs, especially when your investments are generating negative returns. However, there are steps you can follow to ensure that you relax while your investments work for you:

• Invest in funds that can help you achieve your financial goals as per your risk appetite and investment horizon

• Diversify your investment across categories and investment styles

• Select funds after evaluating it on quantitative and qualitative parameters

• Strategically place your portfolio by following a `Core & Satellite' approach

• Create a personalised asset allocation

• Do not rely heavily on the star-ratings of the scheme or advice from your friends/relatives

• Stick to your investment plan and asset allocation regardless of market conditions

• Review the performance of your portfolio periodically and weed out any inconsistent performer

By following the above steps prudently, you will be able to achieve your target without taking unnecessary risk.

Editors' note:  Do you want to know the best mutual fund schemes to SIP into, ELSS for tax saving this year, and schemes that have the potential to provide BIG gains?

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