Sensex down 4,000 points in a month: what should mutual fund investors do?

The benchmark index BSE Sensex tanked 4,000 points to 34,000 levels in the last one month. Investors lost Rs 17 lakh crore in top 30 companies that form S&P BSE Sensex in the same period. No wonder, many mutual fund investors are concerned about the current market conditions. According to some mutual fund advisors, many investors have suddenly turned extremely cautious and they are rethinking about their equity investments and ongoing SIPs. But is it a good idea to stop your investments or stay away from the market when the markets are going through a bad phase?

“Mutual fund investors should sit quietly and do nothing to their investments. They should in fact top-up their SIPs. Investors should understand that one can purchase large number of units when NAVs come down. So, you can buy more units while spending the same money,” says Sunil Subramaniam, MD, Sundaram Mutual Fund.

In fact, that is the whole point of Systematic Investment Plan or SIP. When you are investing regularly in mutual funds for a long period, irrespective of the market conditions, you end up buying more units during a market downturn and less number of units during a bull market. This helps you to amass more units and maximise returns in the long run.

“It is very important to remember the basis of investing via SIPs. The idea of SIP is based on rupee-cost averaging and now is the time to average down your costs. “You make money when the price you pay for an asset is low,” says Tarun Vohra, Founding CEO, Integra Profit.

Subramaniam says that investors should use such huge falls in the market as an opportunity to invest more money to their existing funds. He also has an advice for investors who are concerned about the negative returns offered by their SIPs: “investors who will invest more now will enjoy higher returns when markets bounce back as they would have accumulated more units at lower costs.”

He is confident that the stock market would bounce back in three to six months. He also point out that apart from the financial services sector, earnings for all other sectors have come strong which is in line with the strong GDP. “When you are investing in a mutual funds, you are not only buying stocks, you are actually buying Indian economic growth story,” says Subramaniam.

“Do not bother if your scheme is underperforming their benchmarks for three to four quarters. There may be external factors affecting the scheme’s performance. These factors might not have anything to do with the stocks in which your mutual fund invests,” says Vohra.

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