With the markets being volatile both on the equity and debt side due to multiple factors like rupee depreciation, rising crude oil prices, global trade tensions and domestic uncertainties, investor education in the mutual fund space gains supreme importance. It is important that investors understand that there is a lot of negative noise around and should stay focussed on their own long term goals. The corporate sector is by and large doing well where we have been seeing profits looking up, increased capacity utilization, positive cash flow and liquidity. Exports are rising and many export oriented sectors will benefit so the fundamental indicators in the corporate sector are looking good, even globally the economies are picking up. But some macro elements like rising oil prices or trade tensions etc, are creating the unrest, hence, in such a situation, what should one do?
Look at Historical “downs” in the markets and their effects:
A lot of historical data validation is available today and we humbly urge all investors to go through that data before making any hasty decision. In the year 2000 February, the market corrected and within 3 months, the 65.3% return was down to 1.1%. When the market bottomed in October 2001, that return further went down to -25.4%. If this investor had not panicked and continued the SIP, after 5 years, the SIP return on the entire book was 17.1%. Thereafter, in 2007-2008, the markets fell sharply again, a lot of current investors may remember this, however, many don’t remember that the markets did bounce back over a period of time. An investor who started his SIP in Jan 2007 got an 80% plus return in the first one year, only to see the return collapse to 10% just 3 months later and then sink to -39% at the market bottom. From that level, 3 years later, his SIP return recovered to a healthy 17% CAGR. Many investors have repented later having pulled out of their investments in a panic at the sign of a market downward trend.
Do not panic, continue with SIPs:
So one must not take a knee jerk decision of withdrawing in a volatile market if one’s investment tenure and investment goal as some more time in the offing. SIP (systematic investment plans) is a prudent way of investing into equity markets because of the rupee cost averaging effect that it has. Investors who are the first timers and have come in through the SIP route must realise that the returns would be averaged over a period of time and over a longer horizon SIPs have given healthy returns. Hence instead of getting nervous because of the downward trend in the markets, investors should keep their focus on what was the financial goal before investing. Continuing with your SIPs is one of the best long term investment strategies.
Review your asset allocation:
Evaluating your mutual funds is a good practice which is recommended for all investors from time to time. Ideally one must review their asset allocation at the beginning of the year or at the start of their investments. So if you were satisfied with your original asset allocation, there should not be any reason to change that asset allocation just because the markets have gone south currently. We strongly believe that one must stick to their original goals and not deviate from their asset allocation because of the negative news around.
Stay financial goal focussed, stay invested!
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.