01 NOVEMBER, 2019

Markets are always going to be volatile. That should have no impact on your long-term investing plans.

"The Sensex was at 37,000 on September 16, at 36,000 on September 19 and then at 38,000 on September 20. My stress levels go up and down with the Sensex. Does this market make sense? Wouldn't it be better to put my money in a fixed tenure instrument where I know what is going to happen? What should I do?"

A lot of investors face this dilemma. They have started their SIPs (Systematic Investment Plans) but with the recent spate of volatility in the market they are confused about their next steps. Should they continue investing in mutual funds through SIPs or should they switch to another financial tool?

A simple answer to this is another question: Do they believe in the India growth story? As in, do they think that India, as a country and economy, is going to be better 10 years down the line, than it is today? If the answer is yes, then they should continue to invest in mutual funds through SIPs. Volatility is par for the course when it comes to stock markets.


Take a look at the following chart:

Year

Crisis

Market Before

Market After

1992

Harshad Mehta scam

4,238 (April 3, 1992)

2,678 (June 23, 1992)

2000

Dot Com Bubble

5,471 (Jan 14, 2000)

3,729 (Oct 27, 2000)

2007-09

Global Recession

20,207 (Dec 28, 2007)

8,756 (March 13, 2009)

2019

India Slowdown

39,908 (July 4, 2019)

36,093 (Sep 19, 2019)


These are the four major volatile periods that the market has gone through in the last 37 years. We haven't even included smaller events like the 2004 and 2014 elections, the Patankhot attack and demonetisation. The common factor between all these periods of volatility is that the markets have always bounced back and scaled new heights.

Imagine if an investor had panicked during all the attacks and switched over to other financial instruments. They would have always bought mutual funds during good times and sold or stopped them during volatile periods. Human psychology says that investors only prefer to enter during a good market.

The best feature about SIPs is that it averages out the buying price. You buy less units when the market is good and you buy more units when the market is bad with the same amount that you are investing. In fact, volatile markets are good because it gives you more mutual fund units at the same price.

Talk to your financial planner before you make any decision. You will be asked the following questions:

  • Have your financial goals changed?
  • Do you want money in the next 2-3 years?


If your financial goals haven't changed, then continue to invest. In fact, if you have surplus cash that you don't need for the next 2-3 years, put that into a good large-cap mutual fund when the market is volatile. You will be able to buy good stocks at a cheaper valuation.

If you need money in the next 2-3 years, ask your planner about good debt funds that will invest your cash into fixed instruments but give you a better return than any individual instrument. Mutual funds come in all shapes and sizes. You just have to figure which one is the right fit for you.

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

 

Click here to start your investment journey today.

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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.