No Cause for Panic

In a span of three months the equity market has fallen by more than 5 per cent from its peak. This might make investors anxious, especially those who are new to investing in the market and have not gone through any rough phase of an investment cycle. They are worried about what will happen to the profits they are sitting on and hence might be contemplating booking profit and entering the market when everything regains a more stable position. My advice to such investors is to think of those investors who redeemed their equity mutual funds between July 2020 and February 2021. They lost in the ‘once in a decade’ rally. 

In the last 18 months the equity market has moved up by more than 60 per cent and funds have generated returns even better than this in this period. Hence, there is no point in timing the market. My experience shows that nobody has consistently been able to time the market. The best thing that you can do now is to check your asset allocation. If the weightage of your equity investment has moved beyond your tolerance level, it is the perfect time to rebalance your portfolio. This will help you to book profit from over-valued assets and invest in under-valued assets.

Moreover, further volatility will not lead to any panic selling. It is very likely that a fall in the market would have eaten some of your profit but if you try to time the market the chances are that you may make an error in your judgement and not achieve your desired financial goals. In the long run, the equity market might give you an average return of around 12 per cent and debt fund 8.5 per cent. Nevertheless, you need to remain invested to get those expected returns as your investment returns, especially from equity, that do not follow a straight line. Hence, my suggestion is to avoid any form of panic. Remain invested and follow your asset allocation.

SHASHIKANT