Is Your Money In Mutual Funds? Here Are Top Three Dos And Don’ts

In these times when investors are losing their invested money; Mutual Fund investors aren’t untouched by the drop being seen in the financial markets. As we all know that investments in markets are subject to risks, it might be possible that many investors, looking at the huge losses, might be thinking about withdrawing their funds to cut down on further losses. However, that might not be the wisest step to take in such a bearish market.

Market experts including legendary investor Warren Buffett has always believed that the Bear phase of the markets is the best time to invest in quality stocks, as they are available at reasonable volumes. While this holds good for people who are starting to invest their money in the markets, for those who have already invested their money, this is the time to remain patient and not take rash decisions and exiting at losses.

The most common method of investments among people aiming at wealth generation is Mutual Fund SIPs. And given the fallen valuations of SIPs, investors may be considering to pull out their funds. However, as investment advisors, we would recommend investors to be patient and not pull out their funds immediately.

Past data has shown that markets often recover from such falls within a span of 1-2 years, and give handsome returns on investments. In light of all this, here are a few Mutual Fund related Do’s and Don’ts for you in these recessionary times:

Do’s
1. Reallocate your portfolio
An ideal portfolio consists of an optimum mix of equities, debts and gold based assets. If your portfolio is well diversified, there are lesser chances that it might have been affected much due to the current recession. This might be a good time to invest more in equity based funds as they are now available at cheaper valuations.
2. Make new investments
This might be the best time for you to make newer investments if you have some part of your earnings allocated for the same. Make sure that you invest in quality stocks, take help from your investment advisor and take valuable stock market advice which will help you make a sound decision of which sector/ segment of mutual funds should you choose in this time.
3. Continue your SIPs
A majority of mutual fund investors opt for systematic investment plans or SIPs to invest their money in Mutual funds. If the current conditions allow you to pay for your SIPs, you should continue investing in the same. The core principle of SIP is to take advantage of averaging and the current market scenario provides best opportunity for that.

Don’ts
1. Withdraw investments at once
Do not completely withdraw your entire invested amount in one go only on looking at the valuations. Doing so in case of mutual funds may lead to loss of compounding benefit which you could have reaped on staying invested.
2. Incurring debt to continue investments
While it is not advisable to completely stop investing in these times. It is also not beneficial if you have to incur debt to keep your investments going. Do not borrow money to invest money in the markets when they are falling. If you are facing a financial crunch, it would be best to pause your investments for a while.
3. Ruling out the possibility of markets falling further
It is said that you cannot time the markets. This holds true specially in a highly volatile situation as we are seeing now. As the Coronavirus updates surfacing everyday are telling us about the increasing number of deaths and cases across the globe, there can be no fixed prediction about when this will end. Markets too are extremely volatile and in such cases, there cannot be a prediction as to which level of the markets can be said to be its bottom. Hence, assuming that markets have fallen to the bottom and cannot fall further would be an inaccurate assumption. The effect of virus is still prevalent and there is always a risk of markets falling further.

Keeping in mind all the above factors, investors must decide and reconsider their strategy of investing in the mutual funds. While debt mutual funds provide a safe bet for conservative investors, those who are inclined towards equity mutual funds can also consider investing in stock market themselves with the help of reliable investment advisors. A good investment advisor can provide research based recommendations and overall stock market trading advice to customers.