Example logo image
Categories: BlogDirect Mutual Fund InvestmentsFinancial PlanningJama To Invest SmartSavvyTax Saving With Mutual Funds

3 Implications Of The Correction – But Are You Ready To Take Advantage?

Today the equity markets are in apparent free fall. Many stocks have fallen by more than 20% and the Nifty…

Today the equity markets are in apparent free fall. Many stocks have fallen by more than 20% and the Nifty index itself has fallen by about 7% in just 3 days. Technically a correction is one, wherein the markets fall by at least 10%. Whether your investment in regular plans of mutual funds or mutual fund direct plans, the correction is the same!

Equity corrections are not uncommon

And how rare are such corrections? They come on the average about once a year! We witness a 20% fall once every few years and a massive ‘sell-off’ of  30% happens every decade or so. These falls just happen and there is no way to avoid them.

Question is, how do we deal with them? The first thing to understand is that the long term expected returns on equity is about 15%. Long term is a time horizon of 7-10 years or more. It takes that much time for a business cycle to turn.

In this period there will be peaks, valleys and lots of side ways movement.

We have been advising our clients for a few months, about the need to avoid volatile funds such as mid-caps. The Nifty PE crossing 27 was also something worrying us and we maintained that while SIPs are ok, it is better to avoid large lump-sums in volatile funds.

Why have the markets corrected?

The reason for the recent corrective movement in the stock markets is largely a development in the US markets. The US interest rates are expected to increase, because the central bank (Fed) there is likely to respond to the economy heating up and causing high inflation. They try to balance high inflation vs high interest rates. If interest rates go up, then companies are expected to pay higher cost for raising money which means their growth and profits might get impacted.

What does this mean for Indian investors in their investment?

Indian markets are not immune to these developments and the markets have corrected in line with global markets.

Implication #1 – Indian Markets Has  Robust Future

For Indian investors it is important to note that our economy has strengthened with structural reforms. Earnings by Indian companies are set to pick up. However in the short run there will be volatility.

Our goal as an advisor is to help you tide over these tough periods of investment. Ensure that your portfolio remains steady. As a fiduciary and zero commission advisory, our incentive is your portfolio growth and not commission income. This is not linked to the ‘Assets Under Management’.

 

investment

 

Implication #2 – Keep Long Term in Mind

The current developments might entail some short term pain, but the long term will be much better. Any losses that you suppose, are only notional and you must stay put for long term goals. Good businesses will continue to perform well and sell their goods and services to a growing market.

Implication #3 – Don’t Panic and Withdraw Early

Do continue your SIPs (Systematic Investment Plan) so that the your long term goals are not affected. A dip today means that you are getting to purchase units and stocks at a 10%-20% discount compared to last week! A dip or a correction is the right time for a prudent investor to look for a bargain in the market. While some may say that you may catch a falling knife, please be aware that markets in the long run move only upwards.

 

Recent Posts

 

Share
Published by
Ram Kalyan Medury
Tags: best direct mutual funds to investbest directmutual funds platfromdifference between stock market and mutual fundshow to buy direct mutual funds onlineHow to invest in Direct Plans of mutual funds onlinemutual fund calculatortop mutual funds to invest online

Recent Posts

  • Blog
  • Financial Advisor
  • Financial Planning
  • Savvy

5 Reasons Why A Good Financial Advisor Is A Great Investment

Conventional thinking is that only the rich can afford a financial advisor. After all, a financial advisor helps accelerate wealth…

December 2, 2018 12:24 am
  • Blog
  • Financial Planning
  • Savvy

12 Point Checklist To Change or Appoint An Investment Advisor

Choosing a right investment advisor could get stressful, more so if you already have an 'advisor' and you need to change…

November 3, 2018 3:39 am
  • Blog
  • How to Invest

Direct Plan Mutual Funds For Just Rs 100 per month

Here is a handy list of funds that are available for an SIP of just Rs 100. Fund Class 3…

October 28, 2018 9:41 am
  • Blog
  • Financial Planning
  • How to Invest
  • Savvy

What To Do When Markets Fall and Mutual Fund NAVs are Down

We are living in interesting times. I wrote last week about the recent market correction. Turns out that more action…

October 26, 2018 1:56 am
  • Blog

September 2018 Correction in Equity Mutual Funds & Markets

This being an eventful week of an eventful month, I would like to share some more thoughts. The equity markets…

October 12, 2018 8:29 am
  • Blog
  • Investment Questions & Answers

Two Important Takeaways for Liquid Funds

We had quite a few happenings in September with respect to reputed firms running up defaults on their bonds. Some…

September 28, 2018 12:13 pm