By Omkeshwar Singh

The most important quality for an investor is temperament, not intellect. - Warren Buffett

I am worried about my investments, what should I do, should I exit the market now?

We have been hearing this question or variations of it for a while now. The global lockdown prompted by the spread of Covid-19 has driven many retail investors into a panic mode, many of them are thinking of stopping and redeeming their investments in stocks and mutual funds, and putting the money in bank deposits. Only a few want to hold on to their investments.

Before discussing the merit of each approach, let us take a trip down the memory lane.

You might know that this is not the first time the markets have faced a crisis of such magnitude. There have been situations since 1991 when at least one event in a decade has led to a crash in benchmark indices by more than 35% in India.

Surprisingly, the Indian key indices have always returned to their peak within an average 16 to 18 months, which is faster than the US or any other developed markets.

The table below depicts how the Indian markets behaved during the tough times in the past.

On an average the peak to trough fall is 50%, it usually takes 14 months for the markets to fully bottom out and takes 18 months on an average to fully recover to the previous peak.

Here are the few things that a stock market or a mutual fund investor should do under the current market scenario:

Dont panic and stay invested This advice is for the long-term investor. The market goes up and down but in the long run it is likely to perform better and provide good returns. In the short term your portfolio may lose shine and drop in value due to volatility. However, if you have a longer time horizon of, say, 5-10 years, dont get disheartened by bad news and stay invested. You are bound to recover and make better returns on your investments.

Avoid redeeming your mutual funds Many investors make this mistake of redeeming the funds when the markets are falling. They think it is better to get out of the markets at this stage and re-enter when the market starts to recover. But it is almost impossible to time the markets. Also, remember the losses you incurred are notional losses, unless the investments are redeemed. Once you redeem the funds, you will end up making actual losses.

Invest in funds with a strong portfolio Investing in businesses with strong fundamentals and a healthy portfolio is of utmost importance. Such quality companies will create wealth because even after a sharp decline they have shown strength with their prices always inching higher. In the long run, when things are under control, markets will recover and the same businesses will be fairly priced again and your portfolio will reap better returns.

Invest in mutual funds via SmartSIP As you know, you can maximise your returns if you follow the buy low and sell high principle. Investing in SIP does not give you this advantage, upgrade to SmartSIP. SmartSIP allows you to invest automatically either in equity schemes or liquid schemes based on the signals generated by considering the margin of safety index.

Smart SIP invests your monthly SIP amount in equity mutual funds when the markets are fairly-valued and it doubles your monthly SIP amount when markets are very undervalued.

Smart SIP skips fresh investments in equity schemes when markets are expensive and books profits/sells a part of your existing equity units when markets are very expensive. The sale proceeds and monthly instalments are invested in liquid schemes.

Smart SIP skips your investment in equity schemes and parks the SIP amount in liquid schemes, the money is later used to buy equity mutual fund units when the markets become inexpensive.

This way the SmartSIP makes sure you make the most of the market volatility while being invested in the markets and generate superior returns than your regular SIP investments.

Want to know more about SmartSIPs? Read: Should you opt for the new `Smart SIP way of investing?

(Omkeshwar Singh is Head - RankMF at Samco Securities)

More:
Should you sell or hold on to your mutual fund investments? - Economic Times