Markets are down - Should I Sell Mutual Funds or Buy More?| North Loop Official Blog
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21 Oct 2020

Markets are down - Should I Sell Mutual Funds or Buy More?

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Introduction -

We understand that you have many questions in your mind right now, given the current market situation and these difficult times. It is, in fact, normal to wonder ‘should I buy sell mutual funds now’ or ‘should I invest in mutual funds at all right now’. However, we hope this article will address some of your concerns and provide an answer to the questions clouding your mind right now.

Before we move further into the topic, let us look at some facts and historical data. For example, if we look at the year 2016, we can find that by February itself, the BSE had seen a fall of 26% losing around 1607 points in four consecutive days. The reasons were aplenty - NPAs of Indian banks, global issues and other global factors. If this was not enough, in November 2016, the Sensex crashed by 6% to 26902, and the Nifty dropped by 541 points to 8002. The fall happened parallel to that in other Asian stock markets, and the S&P also fell by 4.45%. However, despite this, because of various reasons, many investors who entered the market in 2016 experienced astounding growth over the next three years. Also, if the 2016 market drop was dreadful, the one during 2008-2009 was even worse. However, despite that, the investors did earn good long-term returns.

What do we understand from history?

You must be wondering why we went back to 2008 and 2016 before answering questions like ‘when to buy or sell mutual funds’. The reason behind doing so is that history pretty much gives us the answer to our questions. If there has been one thing constant about the market over the years, it has to be volatility. Second, regardless of the reasons and the various ups and downs of the market, in the long-term, it has offered good returns to investors. So, even though this looks like a long bear phase, the market has the potential to come back stronger like it has in the past after experiencing similar volatility.

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When to buy or sell mutual funds?

Before questioning ‘should I buy sell now’, it is crucial for you to understand the importance of long-term investments. Also, diving deeper into a macro perspective may not help you predict in which direction the market will head in the future but, it can surely assist you in analysing the past performance of the markets during a similar economic crisis to make informed decisions. Moreover, a long-term strategy can also aid in riding out such market volatility. The pivotal point here is that buying and selling mutual funds should primarily get based on your investment objectives and investment horizon, instead of a multitude of other factors that may not have a bearing on your investment or its returns. The question you should be asking yourself is how you can maximise your returns even during a market low while keeping your risks in check and waiting for the situation to recover, which as history suggests, it most likely will.

SIP in mutual funds -

If you have invested in mutual funds via SIP, you can utilise the current phase to benefit from the rupee cost averaging feature. Given how the market is low right now, you can get more units for the same SIP amount, and that can get your average purchase price down immensely. That also means when the markets recover, you can have the opportunity to earn higher returns.

Summary -

Downturns tend to be followed by upturns - We have already given you examples from the past. Now if we look at research data, you can see that the average duration of a bear market is less than one-fifth of that of the bull market. Also, the average decline of the former is 28%, while the average gain of the latter is over 128%. So, are you still worried about your investments? We bet not. Even though we agree that the past is not a perfect predictor of the future, research and history can give you assurances that if the market goes down it also tends to go up soon.

It’s difficult to time the market - Timing the market can get complicated and, if your investment strategy gets primarily focused on market timing, you can lose out on several opportunities of earning high returns.

Conclusion -

The real game plan should revolve around sticking with your investment strategy with patience and discipline as that is the most crucial step for successfully managing any portfolio. Instead of making decisions based on fear, you should analyse your portfolio composition and talk to your investment advisor to create a strategy to buy, sell, or hold units that can help you hedge some positions and mitigate risks. Even though it is also true that not all long-term investors succeed, keeping a good understanding of your investment goals and time horizon can help you avoid rash decisions and aid in making well-analysed ones.

You can invest in mutual funds with a digital investment platform like North Loop. We offer personalised recommendations based on your risk profile or investment goals and also provide the services of professional mutual fund advisors to help you make your investing decisions.

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This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.