Should I sell my mutual funds or purchase more when the markets are down?

These are challenging times. People are worried about their investments and health, as Covid-19 is spreading around the world. It is important to understand that markets are subject to risk and that market crashes can be devastating. You may have a lot of questions during such times. Or you can stay invested. Are you able to buy now that the market is down? So on. Let's now look at some facts to help you make the right investment decision.

India's Markets in 2020

Let's first look at the market over the past year. Let's take a look at Nifty 50 to see the effect of the virus on markets.

Nifty 50

The year began on a positive note with the index hitting a new high on January 14, 2020. However, after March, the index has fallen by around 39%. Many investors worry that this could be the beginning of a bearish phase. However, volatility isn't a new phenomenon in the markets. Here's a quick overview of the 5-year performance for Nifty 50:

You can see that 2016 was not a good year for markets. The most notable memory of 2016 is the demonetization program launched by the government. It was announced in November 2016. Markets had experienced a dramatic decline in February 2016. Investors who entered the markets in 2016 experienced incredible growth over the next three years, even though we won't get into the causes. Let's look at the performance since 2007 of the index.

Even though the drop in 2016 seemed enormous, it was still a good deal for investors who were involved during the 2008-2009 period of the economic crisis.

As you can see, volatility has been a constant in the markets throughout the years. Markets can experience ups and downs, but they provide good long-term returns, regardless of their origins.

March 2020 Market Crash

Let's have a look at the Nifty 50 March 2020 magnified:

Investors have been concerned about March 2020, as you can see in the graph. Investors are uncertain whether to sell or hold onto their investments, as the Nifty 50 is dangerously close at 8000 points from its peak of 12,362.30 on January 14, 2020.

What should you do?

To help you understand the importance of long-term investments, I shared the macro-perspective of markets.

• Although it is impossible to predict the future direction of the market, you can look back at past performances during similar economic crises and make informed decisions.
• Investors prefer a long-term strategy because it allows them to weather volatile times and not worry about their investments. Therefore, it is important to determine your investment objectives and the time you plan on being in the market before buying or selling mutual funds.

We cannot assume that the panic of the markets about the impact of Covid-19 economics on the Indian and global economies was the main cause of the crash. However, it is important to remember that the pandemic will eventually be contained and markets will rebound.

You should ask yourself how to maximize your returns and minimize the risk.

The SIP

This phase is ideal for those who have invested in Mutual Funds via SIP. Markets being low will result in more units per SIP amount, which will reduce your average purchase price. You will have a greater chance of earning handsome returns once the markets improve.

The question of whether to buy more mutual funds units or when is the best time to sell them is not an easy one to answer.

It all depends on what type of funds you have, how they are structured, your investment goals, the time horizon, and other factors. Don't fear. Emotional-based decisions can be counterproductive. Talk to your investment advisor about your portfolio to determine if you can sell, hold or buy units to help diversify your portfolio or reduce risk.

Many investors believe that the market down means it's a good time for them to wait for their markets to recover. This may seem like a good idea but it is important to consider the other side of this decision before you buy stocks or mutual funds.

• You must ensure that the securities you purchase have the ability to withstand this stage without injury and are able to bounce back.
• The recovery time for the markets is getting shorter as the virus continues to spread. To generate profits, you need to have enough holding power.
• To accurately time the markets, one must have a deep understanding of how various macroeconomic conditions affect market sentiment. A mistake in judgment can lead to costly consequences.

Summarising

Although the market crash right is scary and brutal, we hope you can look back at the historical data to help you see the bigger picture. You must remember that not all long-term investors are successful. A portfolio should be able to produce good returns for 7-10 years. You should therefore not rush to take a decision. Instead, take the time to analyze your options before making any moves.

Best Wishes For Investing and Good Luck For The Future!