Market has faced crashes before as well but the current one is quite a significant one in the last decade due to the fast spread of coronavirus and subsequent lockdown. The slippage of world economy luster has put significant risk on the health and finance of people worldwide. The quivering financial landscapes have put light on the need to follow asset allocation and maintaining the needed emergency fund. The unplanned liabilities, obsessive buying culture, high lifestyle expenses are putting people under financial stress from the reduced/ temporary halt of income.
A sharp fall in the stock market over the past few weeks has made the prices of several stocks look attractive, thus tempting investors to make fresh purchases.
The times have changed earlier people were skeptical to enter into the market during crises but now as per ET Markets news, Upstox is set to report a 35% jump in new Demat accounts opening for the Jan-March 2020 quarter, compared to October-December 2019. Quite contrary to the traditional way of thinking.
The Nifty dropped 1,135 points, or 13 percent, to close at 7,610, the lowest since April 8, 2016. This was the steepest fall for the index, both in percentage and point terms. The Sensex dropped 3,935 points, or 13.2 percent, to end at 25,981, the lowest close since December 26, 2016. Big crashes have hit the stock market many times however, each crash has typically been followed by a healthy recovery and rally for 3-5 years.
Before heading for equity investment define your investment goal. Review your current portfolio and make sure to not make any long term decision on any short term correction. If your direct equity or Mutual fund investment is in alignment with your financial goal then avoid rash decisions and exiting them mid-way. Doing so turns the whole exercise of investing futile, ending in a bad investing experience.
The market volatility can be worrisome in the short term, but long-term investors need not fret. Buying on low levels is helpful but avoid bottom fishing as deploying money at a perceived market low can burn your fingers badly. You can invest your money in the market but in a staggered way don’t try to time the market.
We are receiving queries from new investors that how they can enter the market. People are sitting at home relishing the Ramayan- when Hanuman is advised to and bring the SanjivaniButi to cure Laxmana, he goes and carries the whole mountain amidst the confusion. So we can take the learning and avoid buying anything.
Index funds could be a good option at this point of time. It follows a passive investment strategy by replicating a benchmark index like NSE Nifty or BSE Sensex. The fund comprises of stocks in a similar proportion of the benchmark. Hence, it delivers returns similar to the index. These are subject to market ups and downs."
They are smart tools for diversification and can be used wisely in combination with actively-managed funds to build a solid long-term portfolio. You get the replica of the stocks that are part of the index thus diversifying your money in huge segment along with that is easy to handle, less chances of human error, low cost thus helping you in building good corpus in the long run.
There is no foolproof method for predicting what type of mutual funds will perform better than others during any given timeframe, stick to your financial goals as per your suitable asset allocation. However, some conditions can make index funds a smarter investment choice than actively-managed funds.