Falling Markets, Ailing Mutual Funds: What Should You Do?

The Indian Equity markets saw one of it’s worst nightmares over the past few weeks. In the first week of October alone, the Sensex slipped more than 2,500 points. Overall, the Sensex has shed around 5,000 points since it’s all time high of around 39,000 towards the end of August. For the previous few months, Mutual Funds were showing early signs of the storm, owing to ailing mid caps and almost half of the Sensex and Nifty composition were in Red. However, some sectors like IT, and few banking and conglomerates stocks were holding the flag high. But with the recent fall in these stocks, the indices experienced massive jolts.

Markets are volatile because of various macro and micro factors, there is a lot happening around, global oil prices are increasing, US trade war sanctions, depleting Indian Rupee, the recent ICICI loan controversy, IL&FS’ potential loan default, etc.

If you look at the excerpts from the experts, you’ll come across diverse opinions, some are of the view that the markets may correct further due to the above factors and poor economic indicators, others opine an advancement, they are seeing at the positive growth estimates for the economy.

So, looking at the uncertain market scenario, falling NAV’s, varying notions, what should be your plan of action?

Ideally in the current situation, you should Do Nothing.

Volatility is inherent in the markets, Equity, by nature doesn’t grow in a straight line, there will be peaks and there will be bottoms, prompted by various factors, like the ones cited above are behind the current bottom. You cannot control it, so if it is not in your hands, let equity only exhibit the show.

Secondly, equities although are volatile, but if you look at the long term performance graph of the Sensex or the Nifty, the growth of the underlying companies and the economy takes over the peaks and the valleys, concurrently registering superior overall returns.

This is because the temporary factors don’t determine the growth of Equities, these factors can influence the prices for the time being, but over the long term, the indexes are actually a slave of the underlying companies potential. If the companies grow, the indexes will grow. The Sensex Value on 30th Sep 1998, was 3,102.29, and exactly after two decades, the Sensex closed at 36,227.14 on 28th Sep 2018, translating into a CAGR growth of more than 13%. And that was about the Sensex, the return generated by most Equity Mutual Funds in India, is much more.

The best you can do in such a scenario is, Ignore, you don’t even have to look at your Portfolio’s value, the turbulence will subside and eventually the markets will stabilize, leaving your investments growing over the long term. Consider you have invested in a PPF, the lock-in of the PPF investment is 15 years. Do you keep checking the value of your PPF whenever there is a hike or cut in the bank rates. No you don’t do that, rather you wait patiently for 15 years before you get the corpus credited into your account. The same logic applies to your Mutual Fund investments too. Be patient, give them time to demonstrate their potential, and let them fulfill your goals, the reason why you invested in them.

To conclude, amidst the current shaky situation, do what you have always been doing.

For your short term goals: Stick to liquid funds and short term debt funds

For your long term goals:

> Continue your Equity investments.

> Don’t stop your SIPs. One of the core factors behind the superior returns generation in the SIP mode of investing is through Rupee Cost Averaging, which means at high NAV you get less units and lower NAVs will fetch you more units of the scheme. So, it’s because of these volatile times, when the NAVs are low, you get more units in the SIP mode, which can give a boost to the overall returns over the long term.

So, let the cramps in your stomach rest, don’t pay heed to investment recommendations from finance gurus on TV channels or from people around you. Trust your financial advisor, stick to your financial plan and keep moving towards your goals.

  • Source: NJ Publication

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