The mutual fund investors survival guide to a market downturn| North Loop Official Blog
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30 Sep 2020

The mutual fund investors survival guide to a market downturn

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What are mutual funds?

Mutual funds are the investment instruments wherein customers deposit money as a lump sum or SIPs (Systematic Investment Plans) at regular intervals to portfolio managers (money managers). The mutual fund managers pool in money from various individuals (depending on their risk appetite) and invest the pool of money into securities (such as stocks, bonds, and other money market instruments) in exchange for returns.

Present Market scenario-

In India, it is fair to say that COVID-19 has ravaged the markets all around, leading to extremely volatile situations. The Indian Middle Class, which has often been lured by corporates to invest in the stock market, has faced the wrath of the pandemic with constant losses and market crashes. The Middle Class is in search of strings and stable investments that will keep them afloat during such unforeseen situations. Mutual Funds are a concoction of select stocks varying by risk, and the main purpose of said funds being non-volatile in the case of very low-risk preferences.

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Analysis of portfolio-

In times like these, it is critical for investors to analyze and reassess their financial goals and objectives, where short term mutual funds need to be given a second thought. More emphasis needs to be made on long-term investments as they’d be relatively immune to the market volatility and any losses incurred during the economic downturn will be recovered in the long run.

Mutual funds as a long term investment-

While it might be difficult for the working class to invest bulk sums every month for the sake of long term investments, starting a SIP might be an apt solution. With monthly investments ranging from as low as 500 per month, it makes perfect sense for the working class to start a monthly SIP rather than bulk investments in the stock market. In comparison with bulk investments in the stock market left for short returns, monthly SIP’s which have accumulated the same value has performed much better due to financial expertise in diversification of investments.

Why long term investments are the go-to solution

Investing a lump sum of 50,000 in one day is certainly a bad choice. A wiser choice would be to invest 5000 on a monthly SIP for 10 Months. Mutual funds are a wiser choice as financial experts carefully choose and pick stocks that perform well in all weather conditions. The Middle Class truly would benefit from investing in a SIP as their profits wouldn’t be linear but exponential. While short term investments guarantee small time gains, long term planning for a working-class family can go a long way in securing their future, no matter what the circumstance. This pandemic has been witness to the financial trauma faced by middle-class families. While a lot of families have suffered, a few have already made amends to secure their future in such emergent circumstances. It is highly advisable for middle-class families to start a monthly SIP to secure their future after retirement.

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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.