At MintGenie, we go a step further in making sure all your personal finance related questions are answered. You have a question, we get it answered. In this series, we take up a question related to your mutual funds investment and ask five financial advisors to give their views. You get three detailed views to help you make an informed choice.
Q. As the markets continue to fall, should one book profits in mutual funds as well and wait for an opportune time to enter again?
Ankur Kapur, Chartered Financial Analyst, and Founder of Plutus Capital, says:
It is the nature of the stock market to oscillate. Global and domestic events have a serious bearing on the stock market. However, timing the market has never paid out as a strategy over the long term. Even the best investors have not been able to time the market well. As a retail investor, you should avoid getting dragged into the narrative of the market. These are short-term news and should not impact your asset allocation decision. You should continue with your SIPs and overall asset allocation should be tuned to your financial needs.
Vaibhav Agrawal, SVP Research, Angel One Ltd, says:
We expect markets to remain volatile in the short term due to rising inflation, rate hikes, and geopolitical tensions. However, we see a very strong long-term prospect for the Indian economy based on multiple tailwinds like the pickup in Capex, strong deleverage of corporate Balance sheets, credit growth and asset quality improvement for the banking sector, and push to manufacturing on China+1 strategy etc. Further, after recent corrections, valuations seem attractive for long-term investment. Investors with a long-term horizon should stay invested and continue their SIPs. Investors should diversify across asset classes in order to ride through market volatility.
Vivek Bajaj, Co-founder, StockEdge & Elearnmarkets, says:
The market is volatile as the Indian Equity Markets are falling due to global cues such as Ukraine-Russia Invasion and Inflation. Due to this, the performance of the mutual funds is also falling. Mutual Funds holders should not be concerned with immediate results. Many other variables contribute to the market's decline: the war, worldwide risk-off in financial assets, and monetary tightening. As the market improves, so will the price of the stocks. Investors must exercise patience. Generally, Mutual Funds managers invest in value stocks, so correcting markets is an excellent opportunity to invest in Mutual Funds. Therefore, it is a good time for the Mutual Fund holders to start doing SIPS in the value stock.
Dev Ashish, Founder, Stable Investor, says:
Investors may be tempted to time the markets by selling now (in anticipation of a larger correction) and buying later at lower levels. But it is impossible to predict future market trends in the short-term and hence, perfectly timing exits and re-entries is a futile exercise. You will keep second-guessing when the right time to enter again is or whether you should wait for more. In the long term, markets and economies always recover and make new highs. So, if you are investing for long-term goals, position yourself for that. Believe in spending time in the market rather than trying to time it. If the market fall has reduced equity allocation too much, then consider rebalancing it back to proper equity levels for long-term mutual fund investments.
Arun Kumar, Head of Research, FundsIndia, says:
Given the recent market fall and several uncertainties, it is natural for a lot of us to extrapolate the current fall and think that the fall will continue. There is a strong temptation to exit equities now with the intent of entering back later at lower levels.
To time the entry back is difficult because history shows us that stock markets typically hit their bottom before the worst news arrives. The recent Covid 2020 crash was a classic case where the Indian markets rallied by 40% before the actual Covid cases peaked in the first wave. This is a pattern seen across most bear markets in India and globally.
There are a lot of false rallies in the middle of a market fall. It’s difficult to distinguish between the real recovery and the false rally. Waiting for a few months (say 6 months) to confirm a recovery also does not work well as most of the time the initial recovery rally is extremely fast (sample this - 85% in 3 months during 2009 recovery).
Once we miss the bottom, we are also psychologically anchored to the bottom levels and find it difficult to enter back at higher levels.