Before starting lets take a history lesson.
This study about the stock market bear and bull has two important lessons.
- It has happened in the past
- After every bear phase, there are decent returns to be made
Another study above shows that the average time to recover all that is lost is four months.
Let’s get things into perspective for Indian Markets
A bear market is considered the best time to invest in the stock market where Indices fall more than 20% from their peak. Since both the indexes (Nifty50 & Sensex) are down by more than 25% we are in the deep bear state. In the medium term, the worse the market performs the better returns you get.
It is said buy when there is blood on the streets. In a recent survey, it was seen that only one out of six investors are buying aggressively and those who lost the major chunk in 2020 are not disheartened and keeping their nerve and only 3.5% want to exit completely and 7% are waiting for the market to recover so that they can get out.
When is the good time to invest in Mutual Funds?
In the past few years, we have seen that the Indian market is doing well and so are equity mutual funds. Clearly allocation is the skill and patience is the key. If you understand the market, one should maintain a long term perspective.
- To answer the question should we invest in mutual funds when the market is down? Yes of course! But this should be in tandem with your SIPs running in parallel — not exclusively. Timing the market isn’t an exact science, and SIPs do well to protect you from wild swings in the stock market.
- When the market correction is expected then multiple strategies can be applied to your investment portfolio. If one has surplus at his disposal, then he can invest in liquid funds or short term debt funds. One should keep in mind to choose funds with less expense ratio to achieve maximum benefits. During the bearish market, a multi-cap fund provides many alternatives to switch into according to investment goals.
- A SIP is the best strategy since at these lower prices you will end up buying more mutual funds units and less units when prices are high. This way it automatically averages out your buying and protects your portfolio from the wild market swings.
How do mutual funds perform during corrections?
Allocation of assets is an important factor in portfolio performance. If a portfolio is divided into 60% equity and 40% bonds, then it is not going to fall that much with the stock market. For example, depending upon the allocation if a market falls by 7% then the portfolio should fall by 3%. So allocation of funds makes the important factor how a financial advisor uses his strategy. An experienced financial advisor is one who minimizes client’s portfolio risk & giving maximum returns.
Who should be the ideal person to invest?
One should invest only if they are going to invest for a period of five to ten years and are unlikely to use that money. It is highly recommended to have sufficient reserves to manage at least three to six months of living expenses. As expert advisor, we advise you to revisit your portfolio and review your actions regularly. This entire situation (Covid-19) tells us that we don’t have any control on the crisis but what we can control is your time horizon, temperament, and discipline.
Someone who is not upset with the market decline and wants to invest more than it’s a good time to invest. We love to quote these days that the market has fallen sharply in the past also and it will go back to normal in some time. True! but with caution, this time situation could be different and history may not repeat itself. It’s better to take expert financial advisor’s opinion before investing in stocks or markets in general.