How to make smart investment decisions during market downturns and safeguard your mutual fund investments

As an investor, you might have heard of market volatility in theory, but could get scared of when it happens in reality. If you are interested in investing in mutual funds, but are apprehensive about the downward trend of the market, then you should read this article. This article is a mini-guide that helps you understand certain factors which can be useful in guiding you toward better decision-making with respect to investments.

There are several factors that could be the reason for the market's slowdown. These could include post-budget announcements, bad monsoons, outflows of FPI, poor performance of India Inc in Q1, bad loans, increased tax rates for the rich, or a mix of all these above. But here is what you need to know - you cannot always predict with complete accuracy.
 

Many investors who get distressed by temporary market volatility, often seen when significant government policy changes are announced, end up taking a rash decision to sell their mutual funds or stocks. It eventually creates a cycle wherein more people sell stocks than people who buy stocks, which further hurts the market.

• Market volatility is caused by a number of factors, and whether you are an investor of long standing or just now getting started, everyone will experience at least some market fluctuation in their investment's cycle; for many, this will be multiple such shifts.
• This is due to the fact that such volatilities are a natural part of an investment journey. You cannot avoid it.
• Remember that market fluctuations are not always a bad thing.
• Market volatility is a factor that creates risks, thereby creating rewards which show up in the form of inflation-beating returns.

If you are worrying about how the market movement would impact your investments in mutual funds, here are a few factors that you need to take into consideration before you make any further decisions:
 

Understanding your investor profile

You have to first understand your risk appetite. Do you happen to be a long-term investor? If yes, then it is futile to worry over market volatility because you can never possibly know about a short term movement in the market.
 

In the long term, though, markets have fared well even with adverse government policies or other geopolitical events. If you are looking to invest for a short term, avoid equity and opt for liquid or debt funds. If you are a mid-term investor, consider investing in a mix of debt and equity  instruments, keeping your risk appetite in mind.
 

Do not redeem your funds out of panic

If you are a retail investor, you would get panic-stricken when the portfolio goes into the red zone and is not performing according to your expectations. Now, remember that if you have made an investment like any ideal investor would, taking into consideration your true risk appetite and investment objectives, it would be smarter to simply be patient and stick to your present asset allocation and your initial investment plan.
 

A rushed step like fund redemption cannot be justified simply because your portfolio is not generating sufficient returns at the moment.

Continue your SIPs, avoid lump sums

When the market is in a flux, go for SIPs instead of making a huge lump sum investment. You may consider parking your lump sum amount into a liquid fund, and then go for a systematic transfer plan which systematically moves money to an equity fund after things settle.
 

If you happen to have an ongoing SIP, you do not need to stop it. If you choose to stop an ongoing SIP, it can very well be one of the worst decisions you could be making as an investor. SIPs are by nature curated in a manner that you do not have to time the market.

Do not panic

Remember to keep your focus as it is. Market declines are not an unusual event. Also, decline periods do not last. If you look at market histories, market declines eventually lead upwards. To make the best of the slump, the best thing to do would be to keep your common sense intact and not get rid of your assets.

The best way to take this is in your stride and make the most out of the market because if you are not spooked by the panic around you, and remain in your goals, then you will definitely come out on top.
 

The Bajaj Finserv Mutual Fund Platform offers over 1,000 mutual funds schemes. The platform has an user-friendly interface, and offers several tools such as a mutual fund calculator that helps you compare mutual funds and choose the options that are best suited as per your risk appetite and financial goals.