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Best Investment Options in a Crash of the Stock Market

Since the markets have slowed down, the return on investment plans such as post-office savings schemes and bank deposits have been lowered, and hence they don’t seem attractive.

The COVID-19 pandemic has clearly affected stock markets all over the world, putting investors' psychology to the test. The coronavirus has caused a sudden stock market crash the likes of which have not been since market meltdowns in 2008. Even top stocks such as Amazon (AMZN), Microsoft (ASFT), Apple (AAPL), and Alibaba (BABA) have not remained unaffected.

While the COVID-19 lead bear phase has created extreme volatility and uncertainty in the stock market, one thing is clear: Investors are surely looking for other investment plans in this massive crash.

Moreover, the economic growth of India has slowed down in recent years. The Government of India and the Reserve bank of India have taken several measures to boost the economic growth of the country. However, it has stayed quite uncontrolled. The Finance Minister of India announced a two-stages growth booster in the last year while the RBI cut interest rates five times.

These measures were taken in order to beat the economic slowdown and improve market conditions. Just when things seemed falling in place, the novel coronavirus outbreak has now turned out to be an even huge challenge to overcome. The pandemic has caused the Indian benchmark indices to crash at record levels. However, investors should not fear because all is not lost. The current market situation is temporary, which is the result of the coronavirus outbreak. The market is going to pick up in the coming days once the situation is contained. However, for investors who want to go for alternate investment plans, here are some options you can look at when the stock market is crashing down.

1. Equity Mutual Funds

Investing in equity mutual funds is one of the best investment plans not only during the market crash but at any time. Mutual funds are managed by the fund managers, who are finance professionals having an outstanding track record of managing the investment portfolio. Investors can make most of the current situation by investing in equity mutual funds as the fund managers have an excellent potential to make the right calls of buying, selling, or holding on to the suitable equities. Moreover, investing in equity mutual funds via SIP (Systematic Investment Plan) route over the long term, say five years or more, will prove to be beneficial as the investors will get the advantage of rupee cost averaging. It is important to note that staying invested for the long term is the key to success when you opt for equity-linked investment plans.

2. Index Funds

Index funds are a type of mutual fund that tracks a popular stock market index such as the BSE Sensex and NSE Nifty 50. The primary objective of index funds is to imitate the performance of the index it is tracking. This is done by investing funds in the stocks that the underlying index consists of. Opting for index funds will prove to be an excellent move over time as the index has proved profitable over the last few decades. The BSE Sensex touched around 5000 points in March 2000. It grew to touch 6500 points by March 2005. The BSE Sensex was about 18000 points by March 2010. Furthermore, it gained a massive float around 27,500 points by March 2015 and crossed 40,000 in 2019. Thus, regardless of what market conditions are, investors can also count on index funds as one of the profitable investment options.

3. Blue Chip Stocks

Blue-chip companies are well-established and are not much affected by market movements. The stocks of these companies are generally referred to as the blue-chip stocks. These stocks are the most popular among investors. Many experienced investors prefer investing in these stocks when the stock market seems volatile. One thing to remember about blue-chip stocks is that they do not offer high returns as mid-cap and small-cap stocks do. However, these stocks are profitable in the long run in the form of stable returns. Even though the stock market has its ups and downs, the downturns are going to be overshadowed by long-term sustained growth. That's the historical reality. If only our brains accepted that and did not trigger fear-driven reactions such as selling stocks during the market crash and possibly missing the eventual uptick.

We all know that investing in the stock market has its own set of risks, but what makes for earning long-term returns is to let pass the unpleasant duration and remain invested for the eventual recovery. You will be able to do that only if you understand how much volatility you are willing to put up with in exchange for higher potential returns.

During the stock market turndown, it is advisable not to toss a perfectly good long-term investment from your financial portfolio just because it has a bad phase. It is like an investing roadmap and also a reminder to invest in stocks worth holding. On the other side, the stock market crash also provides investors with seemingly good reasons to part ways with stocks and to look for other investment plans.