Mutual Fund NAV: Equity mutual fund investors are facing a tough time as stock markets across the globe are tumbling down bigtime. For new investors, while the fund value is down by anywhere around 20 per cent, even the long term investors have not been spared. The average return in the large-cap category has been negative 19.31 per cent and 6.89 per cent over the 1-year and 10-year period receptively.

Currently, the BSE Sensex trades at close to 29000 while NSE Nifty 50 is close to 8500 and if the meltdown continues, even the 10-year return across mutual fund categories such as mid-cap, small-cap or multi-cap etc may soon enter negative territory.

FE Online in an email interview with Harsh Jain, Co-founder, COO, Groww, an investing platform for mutual funds, attempts to find answers for the retail investors’ in equity mutual funds and what needs to be done now.

What should investors who had started investing over the last 3 years or 5 years do now?

Currently, the market sentiment is sceptical as people are concerned about the economic impact of the spread of coronavirus around the globe. For investors who had started investing over the last 3-5 years, assuming a long-term strategy, these investors should avoid making emotion-based decisions by giving in to fear and panic.

Typically, a good long-term portfolio has a horizon of 7-10 years. That gives this set of investors a reasonable period to recover from the current crash and earn good returns.

Historically, when markets revive from a correction or a bear phase, they tend to surpass previous highs. The instances of negative SIP returns also diminish after the 3 years mark.

This should work as a motivator and keep them away from panic-selling. They can talk to their investment advisors and review their portfolios to diversify or hedge any positions if required.

Should one put a lump sum in March 2020 or wait before deploying funds?

An epidemic is an unpredictable situation. With news flowing in every day, it is impossible to predict how the markets will move next. Hence, ‘cautious investing’ is the need of the hour.

In such a situation, a wiser move would be to avoid lumpsum investing and opt for a slow and steady approach. If you have a lumpsum amount at hand, then a good alternative can be to invest in liquid funds and start a Systematic Transfer Plan (STP)to invest in equity funds of your choice.

This ensures that your funds are primarily invested in a low-risk instrument and you gradually gain exposure to equity while availing the Rupee Cost Averaging benefits too.

Some SIP investors are looking to skip future instalments. What is your suggestion for them?

SIPs are designed to offer benefits to investors when they are going through a low phase. Rupee cost averaging, one of the biggest benefits of SIPs, works its wonders when you buy at regular intervals regardless of the market conditions. We understand that investors are concerned about the economic impact of the virus. However, when this situation fades away and markets recover, investors who continued their SIPs would have a lower average purchase price and a better opportunity to earn high returns. Instead of discontinuing the SIP, it is wiser to look at diversifying the portfolio across asset classes to reduce the risks.

How should investors prepare themselves to cash on the reversal in the market cycle?

All investors know that situations like epidemics, natural disasters, etc. have a huge impact on the economy and subsequently the markets. While it is natural to feel concerned about the damage this situation can cause, they must remember that markets have always recovered from such situations and generated returns for investors. Hence, selling should not be an obvious option. Instead, they must keep their investment plan in perspective and make decisions accordingly. Diversifying can help reduce risks and ensure that they can ride out this storm without panicking.