The sharp drop in Sensex and Nifty may create panic among investors. There may be an urge to trim their equity holdings. However, is that the right step in the current scenario? Or else, is it a time to take the benefit of the market slide by investing more money?
Let us take a look at steps an investor should take in these periods of downturn.
Do not panic from market sentiments
Do not panic from the sudden volatility in the market. “While investing in the market, patience is the key. Try to focus on good companies and do not think of the market as a gambling den. Identify a few strong companies and invest a part of your investment. Once you invest, have the patience to ride through the rough and tumble of the stock markets. As has been evident time and again, markets are cyclic and stabilise over time. So, do not disturb your investments due to a short-term upheaval,” said Adhil Shetty, CEO – Bankbazaar.com.
Stick to your financial goals
The market's slump is for a variety of domestic and global factors. This can happen in a bull market. India has no major problems and its growth story is intact. During such times, when fear and volatility is at its peak, stick to your goals and risk-based asset allocation. “If your asset allocation split changes due to correction in one or many assets --- rebalance by buying more. That's all you need to do. There is no need to panic and start offloading assets. Be disciplined and rational, and ignore emotional-driven decisions,” Anil Rego, founder, and CEO, Right Horizons told Moneycontrol.
Stay invested for a longer-run
There's nothing to worry, market corrections like the present one keep markets healthy and make investors mature. Equity investors with long-term investment horizon should stay invested, irrespective of the intensity of the correction. "SIP investors with a long-term horizon should also continue with their contributions. Remember that market volatility is a blessing for SIP investors since you can buy units at lower NAVs,” said Manish Kothari – Director Mutual Funds, Paisabazaar.com
Apply right investment strategy
Rego said that investors, who do not use the SIP route and instead invest in lump-sum should view this market correction as part of the bull-run. If you have sufficient liquidity available, you should accumulate at every 5-10% dip. Do not panic! Markets will go up and down depending on the various factor. For investors who are into direct equity investments, it is important to stick to large and high-quality stocks. “During a correction phase, the market punishes bad and problematic stocks more. So, stick to cash-generating firms that pay dividends, are low on debt and have strong a business/brands,” he said.
Review your portfolio
When markets turn volatile, they offer a good opportunity to review your portfolio. It helps you understand the progress you made towards your goals analysing the past performance. And if you see market downturn then in such case you can go for TIP (Target Investment Plan) investment strategy where your invested amount gets adjusted with the market volatility and hence helps in achieving your goal on time. You can take investment decision well only if you are monitoring your portfolio at the right time with the help of an adviser.