Do you want to diversify your portfolio? Are you looking for an investment that could offer inflation-beating returns? You may consider investing in mutual funds. The Sensex has scaled the 50,000-mark for the first time. It has rallied 91% from the lows of March 2020 following the global pandemic. You may have earned a high return from your equity funds over the past year. However, should you stay invested, redeem or invest more money in mutual funds?
Why did the Sensex rise to 50,000?
The COVID-19 pandemic led to economic slowdown as the government imposed a lockdown to curb the disease’s spread. You may have noticed central banks across the world, pumping vast amounts of money into the financial system to push down interest rates.
You would find businesses and people borrowing and spending more money in a low-interest rate regime. It helps revive the global economy.
The RBI cut interest rates last year to persuade businesses to borrow and invest in creating jobs. It encourages you to spend more money as loans become cheaper. The production of the COVID-19 vaccine further boosted the equity markets. Foreign Institutional Investors continued to put money in the Indian stock market, and the Sensex scaled the 50,000-mark.
What to do with your mutual funds?
Invest in equity funds for the long term
You may consider staying invested in equity funds for five or more years to attain your long-term financial goals. You could redeem equity funds only if they have underperformed the benchmark index such as the BSE Sensex or the Nifty, over some time.
Equity funds can generate an inflation-beating return compared to other investments, over the long term. You could be affected by the stock market’s volatility if you invest in equity mutual funds for the short run.
Also Read: How to Build an Emergency Fund in 2021?
You may consider keeping a check on your emotions while investing in equity funds. You would find many investors redeeming equity funds in panic during the lockdown. However, the Sensex has risen from the low of 25,638.90 on March 24, 2020, to cross the 50,000-mark in under one year. It would help if you focused on your long-term financial goals irrespective of the stock market’s movements.
Review your mutual fund portfolio
You may consider diversifying your mutual fund portfolio with debt funds to protect it from the stock market’s volatility. You could spread your investment across asset classes, depending on your age, financial goals and risk tolerance.
You may consider reviewing your mutual fund portfolio at least once every six months, to check if it meets your financial goals and risk profile. You may have to rebalance your portfolio if it is overweight in a specific asset class.
You could book profits in mutual funds if you have attained your financial goals. However, it would help if you focused on the right asset allocation, which is vital to attain your investment objectives.
Continue your SIPs in equity funds
You may invest in equity funds through the systematic investment plan or the SIP, instead of a lump sum amount. It is a way of regularly investing a fixed amount in a mutual fund scheme of your choice.
You get the rupee cost averaging benefit, where you buy more units of mutual funds when stock markets fall and lesser units when stock markets rise. You could average the cost of your mutual fund investments, over some time.
It is tough to time the market during rare events such as the coronavirus pandemic. You don’t need to time the stock market if you invest in equity funds through the SIP. Investing in mutual funds through the SIP, helps you accumulate wealth over the long-term.
You may consider continuing your SIP even when the Sensex is at 50,000 points. It eliminates the need for you to time the market and losses due to market fluctuation are evened out, over some time. You could invest in the right equity mutual fund scheme through the SIP and continue your investment, even if the Sensex rises.
You could invest in equity funds through the SIP if this is your first time in the stock market. You could invest in equity funds even when the Sensex is at 50,000. You may stagger your investment in mutual funds through the systematic investment plan if you wish to invest afresh. However, continue your SIPs even in a rising market to attain your financial goals.
For any clarifications/feedback on the topic, please contact the writer at cleyon.dsouza@cleartax.in
I write to make complicated financial topics, simple. Writing is my passion and I believe if you find the right words, it’s simple.
