ARTI ARORA CFP CM | HEAD FINANCIAL PLANNER

Markets are a roller coaster ride and volatility is inherent to them. You see value of your investments going up and then down, up again and the cycle goes on.

Since the start of this financial year and with increasing concerns about the second wave of covid in India, markets have become jittery plunging close to 1000 points in the Monday session this week. By what looks like to be the scenario, we can expect more shocks in the upcoming month.

So, what should be your strategy if the NAV of your mutual fund investment goes down by 20%?

Should you redeem or switch, stay put, invest more or take some other line of action? What should be your course of action in a scenario like this?

We hereby list some important & practical points for you to keep in mind when something like this happens –

  1. Track your mutual fund investment against its benchmark index - Has your investment fallen more or less than the benchmark index? If less, at least the systematic risk of your investment is taken care of. If more, you may have to go further in detail to analyse the fund, its holdings, any fundamental change in the scheme, etc. You will be able to decide on course of your investment basis this little ground work.

  2. Analyse your investment time horizon - If this is a long term investment that you have made keeping in mind a time horizon of 5 years or more and it is just a patch of a couple of quarters that you are looking at where you see the NAV having fallen 20% or more, you may be unnecessarily worried. In the short term, the share market is bound to come up with this blips that should not really be worrisome.

  3. Know the fund type - If your investment is in a sector and thematic fund, then you may wish to diversify across more stable investment options as the downside risk in these funds is much higher due to a more concentrated portfolio. Make sure, you invest in these high risk funds only after taking appropriate expert advice.

  4. Here, defining your core & satellite portfolio across debt & equity asset classes will also help a great deal. The core portfolio is a long term portfolio and so the intermittent volatility of 20% also does not impact your investment decision. As per your satellite portfolio, one defines the stop loss and acts upon it likewise. Having clarity about your investment decisions and the role they play in your overall financial life becomes the defining point for decision making.


  5. Strategize your investments better - Investment in mutual funds specially equity oriented funds can be strategized through the systematic investment plan (SIP) or systematic transfer plan (STP) route so that one enters the market at varied levels and falling NAVs also work in one’s favour.

  6. Expert advice - Referring to professional financial advisor / certified financial planner always help as they have the expertise and experience to guide you through these difficult times so that you don’t end up faltering with your investment decisions.

Handling a 20% investment downside is a difficult situation but when you get the right kind of handholding, guidance and insight, you can turn the tide in your favour.

So, next time you plan your investments or decide on the model portfolio for you to adhere to for the fulfilment of your life goals, make sure you know that the equity market investments are subject to market risks and referring to expert advice as a second opinion to your own research always helps.

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