Market Crash: Rs.94 Lakh Crore Wiped Out From Investors’ Wealth; What Should Mutual Fund Investors Do?
The Indian equity market has faced downfalls in the past few months. After it reached its highest point in late September 2024, the market faced downturns due to several reasons, including global trade issues, expensive stock prices, earning slowdowns, etc.
The BSE Sensex has lost around 15% or 13,000 points since its highest peak in September last year. The Nifty 50 index has shed about 16% or over 4,000 points since then. The midcap index has declined more than 22%, and the smallcap index has fallen by 25% since December. In 5 months, around Rs.94 lakh crore has been wiped out from investors’ wealth.
In such a situation, investors get panicked and confused about whether to stay invested or withdraw their SIPs. So, what strategy should one adopt? There’s no definitive solution to this, but expert advice can provide guidance during such uncertain times.
What Strategy should Mutual Fund Investors follow in a Crashing Market?
During market downturns, it is necessary to stay calm and avoid any rash decisions. Investors should stick to their basic investment strategy for long-term investments and should have faith in it.
It is important for investors to focus on risk management. Every type of investment has its own risks. Your portfolio should be balanced accordingly. If one type of investment is losing value, others might be doing better, helping to reduce the overall risk.
Market ups and downs are normal, and investors are advised not to panic during the market fluctuations. The volatility is a part of investing, and one should not switch their strategies due to short-term changes. Being disciplined and patient in the long term can help you grow your wealth over time.
Experts say that market downturns slow investors to build more units at a lower NAV. Mutual fund investors should continue their SIP and follow their regular investment plans.
Historical data has shown that those investors who stay invested for the long term benefit from higher returns as compared to those who withdraw their SIP during market corrections and try to re-enter it when the market starts recovering again.
Should Investors invest during a Market Downfall?
Some experts say that even during a decline, there are some good opportunities for investors. This is a time for investors to review their portfolios and follow a more effective strategy.
For instance, if a stock has declined by 50% in value, it becomes cheaper than it was before. This can benefit the investors in two ways: investors can either buy good stock at a low price or they can rebalance their portfolios, assessing whether stocks that performed well during previous market fluctuations will continue to perform well in the future.
Things to Keep in Mind during Market Volatility
Market fluctuations can be stressful, but they also offer new opportunities for investors. During this phase, the following things should be kept in mind:
1. Diversify your portfolio: Diversification allows investors to minimize the risk caused by market volatility. A well-balanced portfolio plays a significant role in risk management.
2. Avoid selling investment out of panic: selling investment when the market goes down is not a disciplined approach toward wealth accumulation. Remaining calm and being patient enough to stay invested for the long term can get you good returns.
3. Continue with your SIPs: Investors can benefit even in falling markets with SIPs. It can minimize risk by buying more units at lower prices when the market goes down and when the market goes up again, SIPs buy fewer units at higher prices. This strategy reduces the average cost of acquisition, and over time, it could offer better returns.
4. Consider investing in hybrid funds: Hybrid funds are a type of mutual fund that is a mix of equity and debt instruments. It offers stability and protects investors against market fluctuations.
Market volatility is a part of investment and, therefore, cannot be avoided. But the risk could be minimized by adopting the right strategy. Staying calm and focused could be rewarding during a market crash.
