The stock markets have been bleeding. And the fall in stock prices is also reflected in the fall in NAVs of mutual funds and the value of most investors’ mutual fund portfolios. I got a few emails and several messages from investors asking what to do next as their mutual funds were falling. Hence, this short post.
To be fair, we have now seen a healthy correction in the market on the back of global as well as domestic concerns. There are also talks about recession in developed nations with even the developing ones not remaining untouched. But one thing is clear, India seems to be a better place (than many others) to remain invested in based on multiple factors.
There is no denying that the last few months have been extremely volatile and full of uncertainties. It has been tough for all investors, both small and large, you and me.
The markets have been falling like anything. Will it stop now as we are close to 15-20% down now? Or can they fall more?
No one knows to be honest. It might fall more if the pessimism around rate hikes, inflation, and other factors continues to bog down the market’s mind. But remember one thing – Markets always recover. Sooner or later. Sharply or gradually. But they always do move up again.
So if markets have fallen quite a bit, then at least for the long-term investors, it should have become a lot more attractive than it was just a few quarters back.
Also, the more you can invest during a falling market, the more wealth you will create when things turn around. It is as simple as that. Though easier to say that than do it in practice. But that is the truth no doubt. Do read something on this that I wrote a while back – Accept market corrections, if you want to make money.
Be reminded that equity investing (direct or via equity mutual funds) should be done for the long term only. And in the long term, there will always be short phases when the markets will be volatile and give negative returns. This is completely normal. And you should accept it. Because if you want to benefit from the UPs later, then you will have to face the DOWNs every now and then. That is a fair deal I think.
That said, if your goals are long-term and still several years away, then you can go ahead and invest more as markets have fallen now (and maybe, fall more in near future) and you get better investment prices. Or you can stagger your investment surplus going forward and not invest it in one go. That way, you can go gradual and have better peace of mind.
You can even rebalance the existing portfolio a bit if you don’t have a fresh surplus to invest. Say at the peak of the market (around Nifty 18,500), your Equity:Debt allocation was 70:30 in favour of equity. Now with Nifty hovering around 15,200, your allocation might have come down to 63-37. So go ahead and rebalance it back a bit. If not back to full 70:30, then a bit less if it makes you comfortable. Remember, you will never be able to perfectly time the markets. So do it in phases if that’s more practical for you.
That was about long-term investments. But if your goals are just a few years away, then ideally you shouldn’t be investing in equity funds even if it seems tempting to do so (with the potential to make a quick profit in case there is a rebound).
I know you might not feel great at this time with markets falling, negative news flowing around and your mutual fund portfolio suffering losses. But this is the time to stick to your financial plan. Also, don’t stop investing for your financial goals. When markets fall, you may feel that they should stop investing fresh money to contain your losses. But that’s exactly what you shouldn’t be doing. Instead of fearing a falling market, view it as an opportunity to invest at lower levels so that your future profits increase. So let your monthly SIP in mutual funds continue. Invest during good as well as bad times.