A lot can change in a few months. Until September last year, the Indian stock market was setting new records every day. But since then, all major indices have been in a constant decline.
The Nifty 50 index has crashed about 16% or over 4,000 points from its highest peak scaled in September last year. The BSE Sensex has shed nearly 15% or about 13,000 points since then. The midcap index has fallen more than 22%, while the small-cap index has fallen more than 25% from their December peak last year. In about 5 months, investors have lost a whopping Rs 94 lakh crore.
Amidst such a meltdown in the market, the patience of even the most serious investors can be tested. This is also clearly reflected in the SIP cancellation figures. But what should mutual fund investors do in such times? How should one handle their portfolio? There is no definite answer to this question, but the experience of experts can prove to be very helpful in this matter.
Almost all mutual fund categories, including large cap, mid cap and small cap schemes, have seen massive drop in their funds’ NAV. Large cap funds have dropped up to 19%, mid caps dropped up to 21%, small caps fell as much as 24% in the last 3 months.
What strategy mutual fund investors should adopt in a falling market?
First of all, it is important to maintain your basic investment strategy and stick to the principle of asset allocation. This may be difficult for traders, but long-term investors should have faith in their basic strategy.
Apart from this, it is important to focus on risk management. Every asset class has its own rules and limitations, so the portfolio should be balanced accordingly.
There is no need to panic seeing the volatility in the market. Often people change their entire investment strategy by making volatility an excuse, but this is not the right way. Volatility is a part of investing, so it is important to maintain discipline.
Yash Sedani, Assistant Vice President, Investment Strategy at 1 Finance, said, “Mutual fund investors should continue their SIPs and stick to their regular investment plans. Market corrections offer the opportunity to accumulate more units at a lower NAV, which is exactly what SIPs are designed for.”
Historically, equity markets have witnessed multiple corrections, but long-term investors who remained committed have benefited from wealth creation. Staying invested with a long-term perspective is key to navigating market fluctuations successfully.
Is there any opportunity to invest in this decline?
Experts believe that some great investment opportunities are present even during this decline. This is the time for investors to properly check their portfolio and adopt a better strategy.
If a stock has fallen 50% in value, it is cheaper than it was earlier. This can benefit investors in two ways — either they can buy good stocks at a cheaper price, or they can reshuffle their portfolios, determining whether stocks that rose during the last boom will continue to do well.
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Opportunity for investors in market volatility
Market volatility can be scary, but it also presents great opportunities for savvy investors. The following strategies can be adopted to get the most out of mutual fund investments:
- Do not sell investments in panic
Selling investments in panic when the market falls is not the right strategy. Historically, markets recover over time and patient investors get good returns.
- Diversify your portfolio
A proper balance of the portfolio is important to reduce risk. Losses can be limited by investing in large, flexible, value-based and hybrid funds.
- Continue SIPs
Systematic investment plans (SIPs) can help investors benefit even in a falling market. When the market falls, one gets an opportunity to buy more units at a lower price, thereby increasing long-term gains. For example, if you invest Rs 10,000 every month and the NAV falls from Rs 500 to Rs 400, you can buy more units. When the market rises again, your investment will give more returns.
- Consider hybrid funds
Hybrid funds, which are a mix of equity and debt instruments, provide stability and help protect against market volatility. These are ideal for investors who want stability as well as growth.
There will always be volatility in the market, but by adopting the right strategy, investors can make the most of this situation.
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Conclusion:
While a market crash may seem scary, it can also be the perfect opportunity for investors to re-evaluate their portfolios and make smart decisions. Instead of panicking, it is important to maintain patience and discipline at such times. In the long run, the right asset allocation, continuing SIPs and identifying good opportunities at low prices can prove to be beneficial. There will always be fluctuations in the market, but history shows that investors who keep calm and stick to their strategy achieve better returns in the long run.
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