The Coronavirus outbreak has wreaked havoc on the stock markets globally as leading countries involved in international trade activities have gone under a lockdown. The pandemic has severely affected Europe and the United States in particular and has led to a significant decline of stock markets.
The market fall has raised concerns among investors as the Indian benchmark indices have plummeted to their multi-year lows. Some investors see this as a significant disadvantage, which is wrong! The market fluctuations are part and parcel of equity-linked investments and investors must embrace it.
Some mutual funds are also affected by the latest pandemic and Yes Bank crisis. This has led to investors stopping their systematic investment plans (SIPs). They may have done this fearing a further slump in the markets. One should always note that market volatility is an integral part of mutual funds and investing via SIP is the only way to mitigate it.
By investing in mutual funds through SIP, the investors will benefit from both market high and slump. This is because when the markets are down, the investors will end up buying more fund units while they pick up fewer units when the markets are thriving. This is called the rupee cost averaging. This benefit is not available for lump sum investors.
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Therefore, no matter what the market condition is, SIPs should not be stopped. On stopping SIP, an investor would lose out on the opportunity for scale over the long run. Mutual fund investments made via SIP will provide excellent returns when an investor stays invested for the long term (five years or more). Here, patience is the key.
This is not the first time when the markets have come down crashing. Back in the year 2008, the subprime mortgage crisis resulted in a global recession. This led to the Indian benchmark indices dropping record levels. The following graph shows how the BSE Sensex fared between 2005 and March 2020:
Source: Yahoo Finance
As we can see from the graph above, the BSE Sensex had slipped massively in late 2008, and the trend continued till mid of 2009. After that, the index bounced back overwhelmingly. It did not have another significant fall until the outbreak of the Coronavirus. One thing that we can draw from the graph above is that the market condition will never be the same.
Post-2008 slump due to the subprime mortgage crisis, the Indian markets have performed stupendously, providing excellent returns for investors. The Indian benchmark indices BSE Sensex and NSE Nifty recorded their fresh peaks in January 2020 and have now fallen due to a pandemic. The current market condition will not prevail, and the markets are expected to pick up once the virus is dealt with.
Markest do fluctuate but will yield excellent returns in the long run. The best thing that you, as an investor could do is to invest in mutual funds via SIP and stay invested over the long-term. On doing this, you would allow yourself to keep the market volatility at bay, and enjoy excellent returns over time.
After knowing how to battle against the market volatility, it would not be wise to stop or pause your SIP. Go ahead and restart your SIP to reap the benefits in future. There is no reason why you must let this pandemic come in the way of achieving your goals. The current market scenario is perhaps ideal for increasing the ticket size of your SIP.
If you have not started investing yet, then now is the best time to get started. You can pick up fund units at a lower price as the markets have fallen and are likely to pick up in the coming days. Staying invested over the long term will give you overwhelmingly high returns.
For any clarifications/feedback on the topic, please contact the writer at viswanathan.v@cleartax.in
Engineer by qualification, financial writer by choice. I am always open to learning new things.
