Mutual Fund Strategy: Finding Best Time vs Staying Invested – Research Reveals What May Work Better

financialexpress.com:

Tyring to find the best time to buy or sell a fund is most likely futile. Most of the time, even outperforming funds basically track or trail the index, according to research by Morningstar.

“We have spoken for a long time about the benefits of long-term investing in a volatile asset class like equities, and what really matters is ‘time in the market’ rather than ‘timing the market.’ Over the long haul, the stock market’s outperformance over cash boils down to just a few critical months. Miss those months and you will have missed all the risk premium to be earned from holding a volatile asset such as equities,” say authors of the research – Kaustubh Belapurkar, CFA and Director, Manager Research and Melvyn Santarita Analyst, Manager Research at Morninstar.

The study found that between October 2013 and September 2023, Indian stocks owed their outperformance over cash to just 12 months — 10% of the months in the sample.

“If you held stocks for all 108 months apart from those 12 months, which we will call “critical months,” a term which we will define more precisely later, you would not have beaten cash,” the researchers say.

Further, on average, less than 4.2% of the months account for all of the outperformance for Indian actively managed diversified equity funds versus their benchmark.

“Active management turns out to follow the same dynamic as the market as a whole. It is thus natural that the implications for buying and selling actively managed funds should be similar to those regarding timing entire markets,” the researchers say.

Also Read: Best portfolio combination? 50% Equity: 50% Debt shows low probability of negative returns – Study

A previous version of the research published in April 2022 shows that over a