Stock Market Crash: Is it Time to Invest in Equity Mutual Funds? EXPLAINED
Are You Ready to Take the Leap?
The Indian stock market has been on a rollercoaster ride lately, with the Nifty 50 and BSE Sensex experiencing a notable downturn. The markets have been in a state of flux, leaving many investors wondering whether it’s time to invest in equity mutual funds. As we navigate through this uncertain terrain, it’s essential to understand the ins and outs of investing in equity mutual funds.
Understanding the Stock Market Crash
The recent market downturn has led to a significant decline in the value of various indices. The Nifty 50 saw a roughly 15.8% decline, falling from 26,277 to 22,124. The BSE Sensex corrected by approximately 14.9%, closing at 73,198. The Bank Nifty also fell, finishing at 48,344, 11.25% below its peak.
Is it the Right Time to Invest in Equity Mutual Funds?
According to Jitendra Solanki, a SEBI registered tax and investment expert, "Investing in mutual funds is what savvy equity investors do when there is a bloodbath on Dalal Street. After a stock market crash, a lump-sum investment in an equity mutual fund is advised for a long-term investor with a five-year or 10-year horizon. After a stock market crash, investing a lump sum amount enables an investor to get maximum NAV at a discounted price. This leads to wealth creation when the market rebounds during a bull trend."
Holding Steady with SIPs
So, should investors continue with the monthly SIP or stop monthly SIP payments until there is a trend reversal on Dalal Street? According to Pankaj Mathpal, MD & CEO at Optima Money Managers, "SIP in the equity mutual fund is free from the market movement. So, one should continue investing in mutual fund SIPs without taking any bother. When the market is in a bull trend, you get a lesser number of NAVs, whereas when there is a stock market crash, you get a higher number of NAVs. Most importantly, you get an average market return over the period when you invest in SIP. So, there is no time to start mutual funds SIP; similarly, there is no point in discontinuing one’s monthly SIP payment."
The 40-30-30 Rule of Mutual Funds
Reminding us of the 40-30-30 rule of mutual funds, Jitendra Solanki said, "Genius don’t do different things; they do things differently. After the stock market crash, no one can time the market; hence, it is advised to invest in a calibrated manner as and when there is a buzz. The Nifty 50 index may test 21,200 levels. To maximize one’s return and minimize the risk factor, I suggest maintaining the 40-30-30 rule. In this mutual funds investment strategy, you invest 40% of the surplus amount in the current market and the remaining 30% after the fall of 5%. If the market further falls by 5%, then you invest the rest 30% amount left with you."
Mutual Funds to Look at After the Stock Market Crash
On which mutual fund plan would be better amid the bloodbath in the stock market? According to Jitendra Solanki, "If the investor is well aware of the nitty-gritty of small-cap, mid-cap and large-cap funds, then they can choose either of these based on one’s risk appetite. However, if an investor wants to take minimum risk by investing in equity mutual funds, then flex-cap funds, multi-cap funds, and dynamic asset allocation funds are suitable for such investors. These funds are expected to give at least 15% annual returns in the long term."
Conclusion
Mutual funds are influenced by the stock market’s performance, which can be volatile. When markets perform well, mutual funds show good returns, but might experience short-term losses during market downturns. In a declining market, mutual fund investments may face short-term losses. However, if you have a long-term investment horizon, a market dip might offer an opportunity to buy mutual funds at lower prices.
Benefits of Equity Mutual Funds
Mutual funds are highly advantageous for achieving long-term financial objectives. One of the key benefits of mutual funds is the power of compounding returns over time. This compounding effect is particularly beneficial when investing in the long term.
Disclaimer
The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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