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A mutual fund is a professionally managed fund created by collecting money from various investors. The fund is invested in multiple capital market instruments like bonds, stocks, government securities, and other assets. This collective pool of money spreads the risk of investors involved. As a result, it increases the chances of earning higher returns on investments.
Numerous people are already engaged in mutual fund investments, whereas others are yet left wondering whether to invest or not. If you are an interested mutual fund investor, then you must be aware of its benefits. So, let's come to our topic of discussion for the day.
The unexpected arrival of COVID19 has shuttered the global economy and created an unprecedented situation for 190 countries in the world. Since the economy is affected, the mutual fund market is undergoing trouble as well. Thus, it is going to erode the wealth of investors.
People investing through mutual funds are less likely to be affected than those who directly invest in equity. On the other hand, COVID19 allows removing poor mutual fund holdings. Despite this fact, mutual fund investors are afraid of the ongoing condition of the market. If you are one of those investors, then seeking expert advice is a good thing.
Expert opinions have been summed up for both potential and existing mutual fund investors.
If you are a steady mutual fund investor, then do not panic and take any impulsive measure. Sensex and Nifty 50 are broader indices of the share market. After the emergence of coronavirus, these indices have come down from their peak levels. So, you can anticipate a downward impact on your portfolio value.
If you have entered the mutual fund market in the last few years, then the portfolio value will still be dissatisfactory. In fact, this period can be termed as a testing time for new mutual fund investors.
We are currently facing an extraordinary period where every single decision counts. Therefore, rely on the financial advisor who has assisted you in making your mutual fund investments. Even if the advisor fails to make up for your losses, he can devise a suitable strategy for you.
A majority of the population, especially Indians, participate in the equity market through Systematic Investment Plan (SIP). However, paper losses in portfolios might restrain them from undertaking SIP. By behaving like other investors, you could be making a big mistake.
SIPs are intended to meet long-term goals like children's welfare and retirement. Therefore, continue your SIP investments if you want to create wealth for the future.
Moreover, SIP can withstand sharp corrections in the market. Do you know that these corrections can average your costs? Yes, SIP can pull down your buying cost so that the profit increases. Hence, increase your SIP amount and make the best of the situation.
According to the past data, the time taken to reach the trough and recovery stage is interlinked. It indicates that the recovery time was pretty quick for the global market as per the past data.
Furthermore, the current correction has been steep and quick for the mutual fund market. Thus, we can expect that the recovery will be speedy as well.
If you have an unnecessary surplus, then invest it in pure large-cap funds. This unnecessary surplus refers to the amount you don't need for the next five years. So, the pure large-cap fund is the next best alternative if you do not want to opt for SIP.
Large-cap funds are highly beneficial at this moment. It's because they will quickly bounce back with the moving up of the market. In turn, it improves the returns generated subsequent to market corrections.
Are some items on your portfolio not performing well? If so, then discard them and consolidate your portfolio. Cautiously analyze your mutual fund portfolio from time to time. Check whether the equity percentage on your portfolio has gone down or not. If necessary, restore the equity to its desired proportion.
Consult your financial advisor on whether fresh purchases can be executed or not. Remember that your ultimate objective is to set off your losses by making gains.
People tend to pull out their long-term investments whenever the market falls. However, it is also likely that you will be thinking of doing the same in this situation. The market might fall, but it will revive its position eventually.
It might take several years to recover the amount you invested. But, ultimately, it will be beneficial for your future. Equity enables you to earn stable returns to fight against inflation. So, do not withdraw your money from equity mutual funds. If possible, add more money instead. If you redeem your units, then it won't do you any good. India and other nations will get rid of this crisis and grow as a stable economy. Even they can become more robust and perform better than they used to do before.
Coronavirus has increased the volatility of the worldwide market about five times. Both health and economic concerns are going together. Gains made over the last few years might have disappeared from your mutual fund portfolio.
Whatever might be the situation, you must focus on your financial goals and milestones. For example, buy underweight assets to rebalance your portfolio. Do not go for an equity market that has fallen sharply if you have a low-risk appetite. You are prone to risk if you can't estimate the impact of individual businesses.
In addition, do not build up a globally diversified mutual fund portfolio. Countries might prefer globally diversified portfolios to support their economies. But, this might not be helpful for individual investors immediately. Therefore, combine Indian and international mutual funds only after a thorough analysis.
Until now, we have discussed the problem from the perspective of existing mutual fund investors. So, now let us come to potential investors who are interested in putting their money into mutual funds.
It is almost impossible to predict the bottom of the market. Multiple variables are governing the market. Therefore, stick to a consistent strategy for your mutual fund portfolio.
Given the situation, starting a new SIP investment right now is a good idea. As the economy recovers its condition your profits will soar to higher levels.
On the Whole
Hopefully, you have understood how to protect your mutual fund portfolio from coronavirus. Keep faith in the economy and do as directed by the financial experts as discussed above. You are definitely going to recoup the losses made to date.