Bleeding Stock Market – Strategy For Mutual Fund Investors

Bleeding Stock Market – Strategy For Mutual Fund Investors. Stocks are bleeding and apparently taking a U-turn. The 806-point drop in the Sensex on 4 October was the fifth biggest single-day loss registered by the BSE benchmark in the past five years.  Mutual Fund Investors have witnessed a large chunk of their amassed wealth eroding in a couple of fortnights, leaving them in red.

Let us have a look at the ups and downs of Sensex in the past decade.

Ups and downs are the order of the markets from its inception. And many argue it to be a natural phenomenon of stock markets. But often forgotten fact is that a huge amount of hard earned money of ordinary people get eroded in every crash. Further to add, a good number of people who suffered the loss quits the market unable to withstand the loss.

The way ordinary investors see the market during a crash or a boom has been typically in the same pattern, year after year. In the boom period, they are bullish to the core and believe that the market will go up forever. And they invest as much as possible by diverting even from other portfolios also if possible.

On the other hand, during a crash, they believe that it is the end of the world and try to withdraw all the invested amount as early as possible.

Both these sentiments are suicidal and will erode your hard earned money in due course of time. The funny fact is that a good number of investors who left the market at the time of a crash will come back with the determination of staying cool during next crash. But the story continues to remains the same even in the next crash.

Investment in stock market vs conventional insurance policies.

If the great old story of ‘Panchatantra’ is retold in the current context, it will answer the query right away. The ‘Share Market’ which is capable of hopping and jumping briskly at times is expected to be the winner of the race against the insurance policies which just inches the journey in due course of time. But many forget that our rabbit will have to sleep during the bearish modes of the market and such periods are inevitable.

But the fact is that normally at the end of the race, the so-called tortoise who received the blames all the way for its slowness emerges to be the winner. The people who noticed the slow-moving nature of insurance policies often failed to understand that it was moving steadily to finish the race.

And the old saying still holds good in our case.

Slow and steady wins the race..

Returns offered by leading mutual funds in the Last One Year

The returns offered by the leading mid-cap mutual funds for the past one year is shown here. You can see that most of the funds delivered returns to the tune of -15% to -17%. So around 1 sixth of the capital has been eroded in the past one year. As the market still tends to follow the dark signs such as weakening rupee and soaring oil prices, what is in store in coming days is any bodies guess.

Analysts are united in their opinion and agree on one thing for sure. The market will take time to stabilize.

Bleeding Stock Market – Strategy to be followed

And again back to our key question, ‘I am an Investor, What should I do now?’

If you have already invested in mutual funds or stock markets, well you do not have any choice but to remain calm and be deaf to the crash news which may come on day to day basis. Withdrawing from the funds or stocks at this juncture will be suicidal.

You will make the temporary loss of the market a permanent loss for you.

If you have more funds, you can think of investing if and only if the fund is not needed to you in medium to long-term ie up to 8 to 10 Years.

And to conclude, the Stock market is not everybody’s pie. It is meant for brave hearts who can close their ears and eyes at their will, especially during the bearish trends of the market.

Read more: Fund Switching Techniques for ULIP policies

Picture Courtesy- Freepik

Anish L J

Anish L J is a ‘Financial Planner’ and member of Chartered Insurance Institute(CII), London and Insurance Institute of India. He is also a finance, insurance and software consultant. He thoroughly follows the developments in finance, insurance, and other related sectors.