If you are an investor in equity mutual funds, the current stock market situation may be leaving you jittery and anxious. You may be contemplating withdrawing your funds to salvage as much as you can, stopping your SIP to protect your capital or maybe switching to debt funds, However, you need not do all that!
Mutual funds are investment instruments that can be truly appreciated when you look at it from a long-term perspective. If you look at anything on a daily or monthly basis, it is bound to be volatile. Volatility is an inherent part of equity markets, which is why the pay-off (in terms of returns) is huge. But, as your lens turns to a 5-year or above perspective, the volatility seems a bit less sharp and losses tend to be capped. Here is a check list of things you can do to exploit the slump in your favor:
Mutual funds are investment instruments that can be truly appreciated when you look at it from a long-term perspective. If you look at anything on a daily or monthly basis, it is bound to be volatile. Volatility is an inherent part of equity markets, which is why the pay-off (in terms of returns) is huge. But, as your lens turns to a 5-year or above perspective, the volatility seems a bit less sharp and losses tend to be capped. Here is a check list of things you can do to exploit the slump in your favor:
- Continue your SIP: Investors know enough to expect volatility in equity markets. Though most of them are wary of it, but when the market is down, investors tend to lose hope and discontinue their SIP abruptly. The risks of greater market volatility drive them to stop their investments. However, this is the wrong approach as far as SIPs are concerned. Continue your SIPs! You can buy more mutual fund units for the same price when the market is down. In the long run, this can help bring down your total cost of investment. Additionally, SIP investments are distributed over several months. This also helps reduce the adverse effects of market downturns.
- Goal-linked investments: It is very important to link your mutual fund investments to financial goals you plan to achieve. For example, wealth creation is a financial goal. Once you are clear about what your goal is, you should begin your investments. We all know that our current and potential future income will not be enough to fulfill all our goals. Therefore, an accumulation of investments over a long period of time, preferably through SIP route powered with compounding, could generate the desired results.
- Think long term: It is always beneficial to invest in equity mutual funds for the long term. The longer tenure will help you tap into averaging benefits of SIP. That is when you stand a chance to get reasonable returns. Historical performance over various periods of time suggest that your investments are less likely to be loss making if you hold on for long period, say over 10 years. Moreover, by increasing the tenure of the SIP, you can also lower your monthly SIP installments.
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