Stock market crash: Is it time to invest in equity mutual funds? EXPLAINED

Indian stock market: Investing in equity mutual funds can be a great way to build wealth over time, but whether it’s the right time depends on various factors such as market conditions, financial goals, and risk tolerance. The recent roller-coaster ride on Dalal Street has left many investors pondering whether it’s time to invest in equity mutual funds.

The Indian stock markets have experienced a notable downturn in the last five months. The Nifty 50 saw a roughly 15.8% decline, falling from 26,277 to 22,124. The BSE Sensex corrected by approximately 14.9%, closing at 73,198. The Bank Nifty also fell, finishing at 48,344, 11.25% below its peak.

Whether it is the right time to invest in equity mutual funds, Jitendra Solanki, a SEBI registered tax and investment expert, said, “Investing in mutual funds is what savvy equity investors do when there is a bloodbath on Dalal Street. After a stock market crash, a lumpsum investment in an equity mutual fund is advised for a long-term investor with a five-year or five-year horizon. After a stock market crash, investing a lump sum amount enables an investor to get maximum NAV at a discounted price. This leads to wealth creation when the market rebounds during a bull trend.

Is it time to stop investing in SIPs

So, should investors continue with the monthly SIP or stop monthly SIP payments until there is a trend reversal on Dalal Street? Pankaj Mathpal, MD & CEO at Optima Money Managers, says, “SIP in the equity mutual fund is free from the market movement. So, one should continue investing in mutual fund SIPs without taking any bother. When the market is in a bull trend, you get a lesser number of NAVs, whereas when there is a stock market crash, you get a higher number of NAVs. Most importantly, you get an average market return over the period when you invest in SIP. So, there is no time to start mutual funds SIP; similarly, there is no point in discontinuing one’s monthly SIP payment.”

40-30-30 rule of mutual funds

Reminding about the 40-30-30 rule of mutual funds, Jitendra Solanki said, “Genius don’t do different things; they do things differently. After the stock market crash, no one can time the market; hence, it is advised to invest in a calibrated manner as and when there is a buzz. The Nifty 50 index may test 21,200 levels. To maximise one’s return and minimise the risk factor, I suggest maintaining the 40-30-30 rule. In this mutual funds investment strategy, you invest 40 per cent of the surplus amount in the current market and the remaining 30 per cent after the fall of 5 per cent. If the market further falls by 5 per cent, then you invest the rest 30 per cent amount left with you.

Mutual funds to look at after the stock market crash

On which mutual fund plan would be better amid the bloodbath in the stock market, Jitendra Solanki said, “If the investor is well aware of the nitty-gritty of small-cap, mid-cap and large-cap funds, then they can choose either of these based on one’s risk appetite. However, if an investor wants to take minimum risk by investing in equity mutual funds, then flex-cap funds, multi-cap funds, and dynamic asset allocation funds are suitable for such investors. These funds are expected to give at least 15 per cent annual returns in the long term.

Is it time to invest in equity mutual funds?

Mutual funds are influenced by the stock market’s performance, which can be volatile. When markets perform well, mutual funds show good returns but might experience short-term losses during market downturns. In a declining market, mutual fund investments may face short-term losses. However, if you have a long-term investment horizon, a market dip might offer an opportunity to buy mutual funds at lower prices.

When markets are down, what should SIP investors do?

Mutual funds, especially equity-oriented funds, can provide significant growth if your financial goal is long-term (5 years or more). Market experts say that ‘roller-coaster rides’ in the market can create both opportunities and risks. When markets are down, it can be a chance to buy units at a lower Net Asset Value (NAV). SIPs are a great way to invest in mutual funds, regardless of market conditions. They involve investing a fixed amount at regular intervals, which helps to average the cost of your investments. This strategy can be especially beneficial during volatile markets.

Benefits of equity mutual funds

Mutual funds are highly advantageous for achieving long-term financial objectives. One of the key benefits of mutual funds is the power of compounding returns over time. This compounding effect is particularly beneficial when investing in the long term.

Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.