Jobs worldwide are at stake and even the business activity is outwardly coming down big time. The COVID-19 crisis and its impact on economic activity is fundamentally expected to continue for months ahead. Further, the stock markets that are often reflected to be a mirror of the economy are already down by nearly 30 per cent, if not less. The true picture of a recession might still be a few months away even while the government and the central bank – RBI (Reserve Bank of India) are doing their bit to retain the economic momentum from falling further from existing levels.
Mutual fund investors who have been regularly investing in mutual funds to achieve their long term goals are quite worried. How will the equity markets perform during a recession? Will there be a recession? What should they do with their mutual fund investments now? When will be the right time to seize the opportunity of low share prices? What if the markets slide further down? Is this the ideal time for mutual fund investors to make significant investments and capture the downside? These are some basic questions that keep haunting investors time and again.
As we know, it is challenging to time or predict the market tops and bottoms accurately. We could still witness some short-term volatility in markets as the COVID-19 cases globally and in India continue to worsen. However, owing to this sharp correction in markets, market valuations have become quite striking. This is indicated by several valuation indicators such as P/B ratio, P/E ratio, market cap to GDP ratio, and equity earnings yield vs bond yield.
This offers some buying opportunities for long term investors. Thus, experts often suggest investors to gradually begin deploying in equities in accordance to their risk appetite.
However, what about those investors who are bearing a notional loss? Is it recommended to exit the equity investments now?
Mutual fund experts suggest to keep calm and not panic. Sure, it is a tough thing to do so in times of extreme volatility, but discipline and patience come into test over here. And, remember, it can be quite rewarding for those investors who practice it during these volatile times. If someone is fretting and exiting now, they may be turning their notional losses into permanent losses (by booking them)—which is not advisable.
To help you with these difficult times, here are some wise words by the Oracle of Omaha – Warren Buffet:
“We don’t have to be smarter than the rest. We have to be more disciplined than the rest.”
“Be fearful when others are greedy and greedy when others are fearful.”
Remember, historical data has time and again proven that investments made in challenging times have been quite rewarding for investors over the medium to long term. (as indicated by past market downturns such as 2011 European debt crisis, 2008-09 global financial crisis, 2000 dotcom crash, etc.) So, work towards your goals, and invest in mutual funds online. There are two modes to invest in mutual funds, namely, SIP and lumpsum. Happy investing!