Here’s Why It’s the Best Time to Invest in Index Funds

The last few months have been trying for investors. Notably, the ones who were on course to achieve their goals in the next few months have been struck. The current market scenario is induced by COVID-19 pandemic. The stock prices have fallen to their multi-year lows and have raised concerns among investors over their investments. 

However, all is not lost! You should look at the brighter side. It is apparent that the market fall has reduced the market sentiment, and some investors are deliberating on redeeming their investments. It is to be noted that exiting the markets now would result in losses. Therefore, the redemption of investments is not an option.  

Everything has certain advantages and drawbacks. Likewise, the current market scenario also has something to offer and cheer about. The Indian benchmark indices NSE Nifty 50 and S&P BSE Sensex have undergone correction, falling over 25% from their all-time highs recorded in January 2020. 

This has allowed you to invest in index funds as they are now available at a much lower cost. However, it is to be noted that investing in index funds is suitable only for those who are willing to stay invested for at least five years. As you know, index funds invest in top-performing stocks across all sectors and thereby giving you the benefit of diversification.

The main intention of index funds is to track and emulate the performance of a popular stock market index, such as the NSE Nifty 50 and S&P BSE Sensex. An index fund invests in the same stocks that its underlying index is made up of. Therefore, the performance of an index fund is influenced by its underlying index. 

Also Read: Financial Tasks To Finish By The End of June 2020

Going by the past, Indian index funds are up for a massive rebound in the coming days. This is not the first time that indices have dropped due to an epidemic. The track record of indices says that they have performed overwhelmingly in the next six months once the viruses have been dealt with thoroughly. 

Back in the year 2003, the SARS outbreak gave the countries around the world a real scare between January and March. During this period, the Sensex index tanked 10.1% as the business activities were affected. However, it made a tremendous comeback in the next months. It zoomed 44.5% between April and September. 

The next in the list is Avian influenza, which broke out in January 2004. Over the next eight months, the BSE Sensex went on to lose 12.3%. Nevertheless, it made a fantastic comeback between September 2004 and March 2005 by gaining as much as 28.8%. 

In the last decade, Ebola and Zika viruses wreaked havoc. Ebola virus posed some problems between December 2013 and February 2014, and Sensex slipped 1.1%. It bounced back tremendously in the period between March and August by adding 28.3%. 

Zika made its presence felt between November 2015 and February 2016. Due to this, business activities and travel were impacted across the world, and Sensex went on to fall 13.4% in this period. What followed in the next six months was terrific as Sensex managed to add 19.7% to its tally. 

Going by the past, the Indian indices are expected to perform overwhelmingly once the novel coronavirus diminishes. Therefore, investing in index funds is an excellent option you have. Grab this opportunity and get started with your index fund investments now as you are likely to see massive returns in the post-pandemic period. 

For any clarifications/feedback on the topic, please contact the writer at vineeth.nc@cleartax.in

You May Also Like

Tax rebate under Section 87A for assessment year 2019-20

Taxpayers often enquire about the rebates and deductions available for their tax…

EPFO lowers the interest rate on PF deposits to 8.5% for FY 2019-20

The Employees’ Provident Fund Organisation (EPFO) has notified the interest rate for…

CBIC notifies new GST extensions amid COVID-19-led lockdown

In March 2020, our Union FM had announced several relief measures to…

Pensioners Who Opted for Commutation To Receive Higher Pension

According to a notification sent by the labour ministry dated 20 February…