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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 mutual fund market correction. Turns out that more action happened last week.

Some of the readers wanted more specific action as the observations may have appeared vague. Hence I am penning down some crisp thoughts, which would take you a minute to read and think through this weekend.

What has happened?

A large number of stocks (about a third) have fallen by 50% and a similar number by up to one-fourth%. The BSE Sensex and Nifty have not yet fallen by 20% which is technically the definition of a bear market.

Will the market fall further?

No one knows. Market Cap to GDP ratio is 77% now. It was 96% in January. During the 2008 crisis, it fell all the way to 64%. This seems to indicate that we are in a bear market.
But there are chances are it may fall further, given that US broad markets have not yet seen a massive correction. The full impact of retail investors stopping SIPs is not yet seen. We will know when there will be daily WhatsApp memes on falling stock markets.

What do I do now?

1. If you have liquidity (ie cash on hand) that is in the surplus of your living expenses and short term goals (2-3 years worth based on your risk appetite), then ADD MORE to equities now. It is a good time to start or accelerate buying now.

2. If your asset allocation (again based on your personal risk profile and OVERALL investments) allows you the ability to add more to equities, then now is the time. Often people with large cash balances in FDs or real estate portfolios do not seize opportunities that come up.
The time to act is now, it is not enough to read about stuff and do nothing. If you need help, do talk to a SEBI Registered Advisor.

Conclusion

If you are adequately invested and have a good asset allocation then, DO NOTHING. Do not panic and remember that this is part of the market cycle.

There are only two ways to get wealthy: (1) Spend after you save a big chunk of your income and (2) Keep investing consistently, topping up when there are opportunities.

Ram Kalyan Medury

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Ram Kalyan Medury
Tags: advisorbear marketfallmarket correctionmutual fundsnav

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