It’s time to secure your mutual fund portfolio from Coronavirus. Investors, as we all observed that the last couple of months has trawled the financial market downside, which has been truly hard to swallow.
Despite coronavirus disease, most companies are asking employees to do work from home except those who are in essential services. Mutual fund houses are also operating with minimum employees.
Last month, the Association of Mutual Fund in India informed the market regulator SEBI of the likely difficulties in mutual fund daily operations though mutual fund houses are doing their best to ensure consistent services.
However, in the current scenario when the Indian stock market falls, most people panic and rush to pull out their long-term investments in anticipation of a future fall in their portfolio values, but the experts believe it is the right time to start investing in long term equities through SIP.
They suggest rather than staying away from the financial markets, you can invest in high-quality funds as the weakness in comprehensive markets offers an opportunity for buying.
As our brain swings between fear and greed, here are few dos and don’ts for mutual funds investors
Relax, all is not lost. Currently, the stock market trend is like a roller-coaster ride where the market has fallen in a short period. It went speedily into a ‘bull phase’ and recovered from the ground in a little more than a fortnight.
If you invested in the schemes to gain a long-term financial goal, then just focus on your goal and proceed with your investments. On the other side, if you don’t have a long-term goal and you cannot handle the volatility, you have invested in the wrong asset. This is the time when you should re-evaluate your investment decisions.
In a time of destruction, create something.” – Maxine Hong Kingston
COVID-19 provides you with the best opportunity to well-organize your portfolios by removing poor-performing mutual funds holdings. If you have invested in good-performing funds and you are not in need of money for the next couple of years, do not pull out investment from your equity mutual funds. If you have a surplus, this is the right time to add your money into equity mutual funds not to redeem your scheme’s units.
It’s a stock market trend that whatever goes down will also come up.
Why mutual fund investors should continue investing in SIPs even in a declining market
The philosophy behind beginning a SIP with an equity scheme is to go on investing independent of the market conditions. Investors shouldn’t stop it in a downtrend, on the contrary, they must hold the SIP for a longer period. Otherwise, they will lose out on the opportunity to make a profit in the long term. Here’s the reason why:
The Average Cost of Rupee
This is a favorable approach for many investors. They can purchase more units when prices are low and less when prices are high. The average cost of the rupee allows you to bring down the average cost per unit for a long period and will thus increase profit when the stock market rises.
Power of Compounding
Compounding is an inspiring concept of earning income on your principal investment plus the income earned. This means the money you invested can be reinvested to make more money than your initial investment. It increases your principal amount and goes back to making more money.
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Experts always advise continuing SIPs even when the market is declining. Bearish trends always allow you to add more units at a lower price and earn better returns when the trend is bullish. Mutual fund houses come with a top-up facility in which they allow you to buy more units, thus accumulating wealth.
Advice from the Expert’s Thinking Hats
In this current scenario, you can also invest in counter-cyclical products like SGB (Sovereign gold bond). SGBs are government/private securities offered in the denominations of per gram of gold and are the best way to hold gold as an asset.
As is the case with Equity/ Mutual Funds or SIPs, the age-old formula of building a steady portfolio works well with SGBs too. According to the trends, investment in SGB three years ago would have fetched risk-free returns today. But one needs to be cautious as the trends in gold prices can be unsettling at times.
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The economy suffers unprecedented challenges like job losses, salary cuts, and crashing global stock markets which are all having a deep impact on the Indian economy and the employees. As the nation goes into quarantine to break the chain of coronavirus infection, supplies and money management become the key.
Mutual fund advisors believe that investors should not focus on short-term losses and stay invested in their schemes. “Mutual funds go through such phases. In your 7-10 years of investment horizon, you will see falls. Don’t shift to ‘safer’ categories at this point. Stay invested and follow your asset allocation,” says Puneet Oberoi, Founder, Excellent Investment Advisors.
If you have been careful while choosing good performer MFs in your portfolio then there is no reason to make an exit. No phenomena is everlasting and a similar fate awaits the virus-led crisis.
The global economies are already planning ways to emerge once the situation de-escalates. Equity Funds will also be back stronger than before. Have patience and remember that this is the only ground where you can earn mind-boggling inflation-beating returns.
“Why do we fall? To rise again stronger.”
Disclaimer: Mutual fund investments are subject to market risks read all scheme related documents carefully.