Hello Readers!

Are you a mutual fund investor? Is the market situation right now upsetting and worrying you? Are you also in dilemma, what to do? stop investing or stop SIP’s or redeem your investment or stay invested?

Well, after seeing the current downfall of the market due to various reasons like COVID-19 and economic slowdown, it is natural for every investor to get panic regarding their investment. At this moment, they have several questions arising in their mind like should I stop regular investments or mutual fund SIP’s, protect my capital and restart once the fall is complete and the market trend turns positive.

Let us understand what would be the best to do with your investment at this time of market downfall.

What happens if you stop SIPs?

The start of the March month in 2020, experienced a good rise with a 22% correction In Nifty 50, but then coronavirus marked its entry in India and the market got affected. Last Monday, 23^rd March, the market experienced a 13% fall in a single day, and this was a matter to consider.

While this has resulted in quick erosion in the value of whatever gains you had accumulated till now in an equity fund, it has also thrown up the opportunity to invest from this point onwards at lower levels.

At this point when the market is in a low phase, the units of assets have also gone cheap, so if at this time you invest in your fund you will get more units at the same SIP amount. 

Let’s say you invest Rs 5000 every month in an Equity fund from March 2010, you would have accumulated 800 units of that equity fund asset till March 2020. Out of these, 63% or 500 units were accumulated till March 2015, when the market was a bit low and rest 300 units you purchased in the next five years. This happened because markets rose at a faster pace post that and hence, a lower number of units are added each month.

This is the most significant feature of SIP, which is popular as Rupee Cost Averaging. This very feature of SIP helps mutual fund SIP investors to not t worry about timing the market internally, as it ensures that the investor purchase fewer units when the market is high, and more units when the market is facing its low performance. 

It’s the higher number of units accumulated in the first five years which will add more to your investment value at the end of ten years.

If you keep adding more units in your investment at the time when the market is low, you will gain more when markets return to higher levels. And the time when the market shows its volatility is the best time to add more to your investments, this enables you to add more units for the same amount of investment. In this way, you have more to gain when the recovery begins as you have added units at a faster pace.

Do You Need To Protect Capital?

Well, it is always advisable to investors who plan their investment in Equity Mutual funds, invest in equity funds only for your long-term goals. 

It is natural for investors to get panic and stop their investment in equity mutual funds, after seeing the value of their investment falling sharply every day, however, if investors tend to move towards stopping their investment means they are moving the objective of their investment towards capital preservation. 

Investors on an important basic need to understand is that the job of their equity fund investments or allocation to equity fund is not to preserve capital. Capital preservation is the job of your allocation to fixed-income securities.

Investors have to keep investing even when the market is facing its low so that when the markets correct, you balance out the investments made when the markets were moving up. When you invest in Equity funds only when there is an uptrend in the market, your successive monthly investments will add lesser units each month when the market is low. Investing in corrections is a way to make your capital more efficient as you can enhance returns when markets recover.

Capital preservation is a thing that should be considered but at the same time, investors should remember, that equity returns help you grow capital in the long run. If you have your investment goal as capital preservation then you needn’t invest in an equity fund.

Investors today the market is performing low and there are various events behind this like Coronavirus, Oil prices and many, but remember these events are not permanent and have a life span. Once these events will expire, the market will regain itself, and the market will begin its upward trend.

So stay invested with your existing capital and do continue your SIPs for the most efficient long term returns and wealth creation that equity mutual fund offers.

You can contact us at Shri Ashutosh Securities Pvt Ltd., for any assistance, we are here to help you in any way possible.

Happy Investing!

(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).