Is this the right time to increase your SIPs

 

Rahul Nair, 35 years old, was in a state of panic. He has been on the phone with his Relationship Manager (RM) at Kotak every day since last week because he is afraid of the impact of the Coronavirus on his investments. It’s not because he travelled to China or Italy recently, it’s because the stock market is crashing and his mutual fund portfolio has taken a hit. His RM asked him a couple of questions. “Mr. Nair, do you need the money for some emergency right now?” “No.” “Do you believe the Indian economy is going to stop growing in the next 20 years?” “No.” “Have your financial goals changed in the last one week?” “No.” When Mr. Nair answered these questions, he calmed down. He heard himself and realised that he was very close to throwing away two years of disciplined SIPs because of one week of panic. Basically, he almost his long-term perspective because people around him were panicking.


Mr. Nair’s story is very common today. On March 9, 2020, the BSE Sensex crashed over 2,200 points or over 5.62% by noon because of widespread of the Coronavirus. And you know what? That’s okay. The stock market is volatile. Take a look at the Sensex since 1990.

 


Source: MFI

 

The Sensex often has deep valleys but after every trough, the market has rebounded stronger than ever. In 30 years, the Sensex has moved from 1,000 points to 35,000 points now. As per historical data, once the Sensex starts recovering, it quickly makes up for lost ground. There is no reason to believe it won’t happen again.
 

Stick to your game-plan, don’t play the markets’ game

When you see so much panic in the market, it is natural to feel the urge to sell and exit. Don’t. The market is made up of all kinds of people. Sophisticated traders who know when to play the market because people are afraid, traders who want to make a quick buck, and the most vulnerable player, the retail investor (you) who assumes the worst and sells their whole portfolio because of mass hysteria. Don’t get caught in a race to the exit.

Here are a few pointers on what you should do:

  1. Assess the market conditions, the amount of money you have with you and your financial goals. If everything is going according to the plan and you don’t need the money, don’t exit the market. If you are wary about putting more money in the market, that’s fine. Don’t remove the money you have already invested.

  2. If you have spare cash with you, invest 25% of that via lumpsum into a good mutual fund. A large cap fund (e.g.  Axis Bluechip or ICICI Bluechip Fund) or a good balanced advantage (Kotak Balanced Advantage fund or ICICI Pru Asset Allocator Fund) fund based on your risk appetite should be apt and/or funds recommended by Kotak at this stage.

  3. Do not stop your mutual fund investments. SIPs ensure that you benefit from rupee cost averaging. A market downturn is the best time for SIPs to work for you because you get good mutual funds at lower rates. Add small lumpsums to your SIPs. 

  4. Keep an eye out for mid-cap funds over the next 6-8 months. As the economic situation improves, you can start investing in these funds again. E.g. DSP Midcap Fund, Kotak Emerging Equity Fund are funds recommended by Kotak.

  5. Add 15-20% allocation into Global Equity. Not only does it diversify the portfolio, it also help us in hedging against rupee depreciation. Examples of recommended international funds are Franklin India Feeder – Franklin US Opportunities fund, Edelweiss US technology Equity Fund of Fund
     

Always follow the investment plan that you have prepared despite market volatility. Markets have gone up and down in the past, and they may do so in the future. Do not lose your long term perspective because of market movements.

Invest Now

Mutual fund investments are subject to market risks, read all scheme related documents carefully.

 

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.