Mutual Fund Returns: Market corrections can test investors’ patience, particularly when mutual fund portfolios show weak or negative returns. However, investors should avoid making hasty decisions based on short-term market movements and instead assess their investment horizon, goals and asset allocation, experts told Zee Business.
Here are 7 things mutual fund investors should consider during a market correction, based on the experts’ insights:
1) First assess how much your portfolio has actually fallen
Before reacting to a market correction, investors should first check how their own portfolio and mutual fund schemes have performed, rather than relying only on negative market news.
Hrishikesh Palve, Director at Anand Rathi Wealth, said investors should look at the extent of the decline in their own portfolio and understand how their individual mutual fund schemes have been affected.
“Your portfolio impact is what is important, not just a negative news in the market,” Palve said.
This is important because the broader market’s performance may not necessarily reflect the performance of every mutual fund category or portfolio. Palve’s analysis showed that different market segments and mutual fund categories had performed differently during the correction.
Therefore, investors should first assess how much their own investments have actually fallen before deciding whether any change in strategy is needed.
2) Don’t panic just because your portfolio value has fallen
Kshitiz Mahajan, CEO of Complete Circle Wealth, said investors should remember that a fall in the value of an investment does not necessarily mean that the underlying investment has changed.
“If you don’t need the money right now, this is market behaviour,” Mahajan said. He added that in the case of mutual funds, investors should look at whether their number of units remains intact, rather than focusing only on the temporary change in portfolio value.
3) Continue your SIP during a market correction
Experts said a falling market can actually work in favour of investors who are continuing systematic investment plans (SIPs).
Mahajan said that for investors who are systematically investing, a correction can be a better time to accumulate units because they can buy at lower levels.
Palve also backed continuing SIPs during the correction. Comparing it with shopping at a discount, he said investors should view lower market levels as an opportunity to accumulate more units.
“The SIP should absolutely be continued,” Palve said, adding that rupee-cost averaging works when investors continue buying through different market conditions.
4) Consider adding to investments if your goal is long-term
The experts said investors with a sufficiently long investment horizon can consider using a correction to add to their investments, provided the investment remains aligned with their risk profile and financial goals.
Mahajan said that if an investor has already been following a disciplined investment approach, a market correction can be a time to think about adding on rather than getting scared.
However, this does not mean investors should deploy all their money at once. The experts stressed gradually deploying money when opportunities arise.
5) Match your fund category with your investment horizon
Investors should not choose large-cap, mid-cap, or small-cap funds based simply on what has performed best during a particular correction.
Mahajan said investors should consider the time available for the investment. According to his guidance, mid-cap investments should be considered for six-seven years or more, small-cap investments for seven-eight years or more, large-cap for five years or more, and flexi-cap for around five-six years.
“The more you go towards the risky side of investing, the longer you should remain invested,” Mahajan said.
6) If your goal is near, move the required money to safer assets
A market correction becomes more relevant when an investor is approaching a financial goal.
Palve said that if a goal is nearing, investors should consider moving the required amount into debt or other safer assets rather than remaining fully exposed to equity-market fluctuations.
“If the goal is coming closer, moving 20-30 per cent into debt is quite good advice,” he said.
Mahajan similarly said that if an investor needs money within the next two-three months, it may be appropriate to withdraw the required amount from an investment where capital gains are relatively low and shift it to a safer asset.
7) Don’t judge your investment only by short-term returns
Experts also cautioned investors against setting unrealistic return expectations.
Mahajan said investors should not assume that equity markets will consistently deliver 17 per cent, 18 per cent or 20 per cent returns. He said that 11-12 per cent or more in long-term compounding can be considered a reasonable return, while returns above that should be viewed as a bonus.
“I’m not saying don’t expect more, but if you remain in that range-bound expectation, you will not be disappointed,” Mahajan said.
The experts also pointed out that the current decline should be viewed in context.
Palve said the market has historically experienced larger falls, including during the 2008 global financial crisis and the Covid-19 period. He classified declines of more than 25 per cent as major falls and noted that the current decline is different from those episodes.
According to Palve, markets have historically experienced an average peak-to-trough fall of around 17-18 per cent, meaning investors should not automatically treat every correction as an exceptional crash.
Mutual fund investors should focus on goals, not market noise
The broader message from the experts was that investors should avoid changing their mutual fund strategy solely because markets are correcting.
For long-term investors, continuing disciplined investments can allow them to accumulate more units when prices are lower. At the same time, investors approaching a financial goal should reduce their exposure to market volatility by moving the required money into safer assets.
Mahajan summed up the approach by saying investors should remain invested with the right set of expectations, while Palve said the current environment could provide an opportunity for SIP investors to accumulate units at lower prices.
The key, therefore, is not simply whether mutual fund returns are falling, but whether the investment remains aligned with the investor’s goal, time horizon and risk profile.