Planning for a major expense, such as a house down payment or your child’s education, often involves investing regularly over several years. But what happens when the stock market takes a sudden downturn just as you approach your financial goal?
For instance, if you need Rs 20 lakh in seven years and have been investing through a Systematic Investment Plan (SIP), a 20 per cent market crash in the sixth year could significantly reduce your portfolio’s value. With your deadline approaching, recovering the losses may not be easy. So, how should you protect your investments and stay on track to meet your goal? Let’s understand this with an example.
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Your Rs 20 Lakh Goal at Risk
Let’s suppose that you invest Rs. 15,000 per month, which amounts to about Rs. 18 lakh over a period of 7 years, assuming an annual return rate of 10%. Notice something important: even with positive returns, this SIP may not be sufficient to meet your objective of Rs. 20 lakh.
Now imagine your portfolio is valued at Rs. 18 lakh at the end of year 6, and the market declines by 20%. This would reduce your investments to Rs. 14.4 lakh. You have been investing consistently for six years, but a market downturn has pushed your goal further away.
What Should You Do When the Market Falls?
First, don’t panic and stop your SIP immediately. A market decline does not automatically mean you should abandon your investment plan. Your next step depends on how soon you need the money and how much risk you can afford.
Second, review your timeline. If you need the money in just one year, you may not have enough time to recover from another market fall.
Third, protect your goal early. As your seven-year deadline approaches, gradually consider shifting the money you cannot afford to lose into safer options, depending on your financial situation.
The Smart Way to Plan
If Rs. 20 lakh is a fixed requirement, don’t depend entirely on expected market returns. Review your SIP amount regularly, check your progress, and build a backup plan if your portfolio falls short.
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