Hello Readers!
The market is showing continuous corrections since March 2020, and it is unpredictable, how much it long is going to last. Sharp declines are making investors more anxious and fearful regarding their investments and money, but we are also aware of the truth that recoveries from such lows happen every time. Being an investor what you need to understand is that the timing and speed of the recovery differ and at the same time they are unpredictable.
WHAT HISTORY TELLS US?
Before we move towards the historical records, first let us understand whether the current market downtrend is just a correction or a bear market. A bear market is officially defined as a period where the fall in prices as measured via a suitable benchmark index has been at least 20% from the recent peak.
Nifty 50 saw its peak in mid-January 2020, at a value of around 12400; while its values in March reach around 10,600, this is slightly more than 25% fall from peak. Hence, it is established that this is a bear market.
However historical records show us that how was the previous bear markets and how much time it took to recover. For example, Nifty 50 fell 45% between April 1992 and August 1992, then bounced back 35% from the lows within two months and again proceeded to fall 37% till April 1993. It's only after that, there was a more structural rally when the value for Nifty 50 doubled over the next one year.
As per historical records, in the situation of long bear markets, returns can be significant in the next year or two. Sometimes, while the bear market is on, markets bounce back only to fall to the bottom all over again. It gets confusing sometimes, but being an investor, we need to calm down ourselves and react positively.
MARKET CORRECTION IS ALL BOUT HOW AN INVESTORS REACTS
Volatility is the market’s nature, and a bear market is one of its phases, it’s natural for them to occur. Finding the reason behind the volatility or bear phase is a waste of time, instead that investors should monitor their actions towards the bear market.
Once you get to know that your investment is facing a bear market, its time to regulate your do’s and don’ts regarding your investment, regulating your actions will help you tide over this period.
Here are some guidelines that you can follow:
- Don’t jump into panic redemptions from equity mutual fund. Check your goal timelines and redeem only that much funds that you will require within a year or two.
- Stay invested in an equity fund as this is the only way to take advantage of lower prices, thus, benefitting you with better long-term returns. If you stop now and restart post markets rising you lose out as prices would have risen already.
- Use market corrections as a way to realign portfolios to good quality equity funds.
- Remind yourself that market volatility or ups and downs happen but in the long run, in a growing economy, returns from equity mutual funds are likely to beat inflation and create wealth.
- Do not try to time the bottom of the market as there can be more than one bottom and really you won’t know when it is until you cross it.
Market fall can last longer than one’s imagination and prices may fall a lot more than you are comfortable with. Thus, panicking in a market and redeeming your fund should never be your action. It might convert your temporary correction in permanent loss. Give your investments time to ripen and give yourself more patience with your investments.
For any kind of query, you can contact us at Shri Ashutosh Securities Pvt Ltd., 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).