The stock market is falling. I am losing money in Stocks & Mutual Funds, I am worried a lot- What to do? Should I exit the stock market now? I recently received this question via e-mail. This is a common question, which is bugging many investors nowadays.
A Carona Virus has created a massive impact on the stock market. Retail investors are in a panic situation. Many investors are thinking that they should stop their SIP. Some of them are of opinion that they should sell all their equity investment and put leftover money in the bank. Few of them want to hold their investments.
So which approach is correct? What investor should do? Well, I don’t guarantee that you will get answers to your all questions here. But, I assure that you will be in a better position to decide what to do in current stock market conditions.
Also Read – 20 Best Mutual Funds for Investment in 2020-21
Stock Market Crash – Should you exit Stock Market now?
Under the current market scenario where the stock market is falling, here are five things that stock market or mutual funds investor can do.
#1 Stay Relax and Cool
Firstly, Don’t get panic. Stay Relax, cool and do nothing. This advice is for the long term investors.
The stock market goes up and down but in the long run it is likely to perform better and provide good returns to the investors. In the short term due to volatility and various other factors, the price of a stock is likely to go down. Your portfolio may lose shine as you lose money in equity and mutual funds. But, if you hold stocks for the longer duration you are likely to recover and get better returns.
So, if you have longer time horizon say 5-10 years, don’t get disturbed with any bad news. Stay cool.
#2 Don’t Stop your SIP
Secondly, don’t stop your SIP. Stopping SIP at this moment is foolishness.
As you know that you can earn in the market if you follow – Buy low & sell high principal. It indirectly means when the market is down, you have to buy more and when market is up, you should buy less.
SIP works on the same principal. The above principal automatically gets applied on the SIP.
Let me explain – Suppose you do SIP of Rs.1000 in the mutual funds every month. When stock market was up the particular mutual funds where you invested your money its NAV was Rs.100. This means you every month you were buying 10 units. Now when market falls, the NAV of mutual fund will reduce automatically. Suppose NAV is reduced to Rs.50. If you continue your SIP of Rs.1000, you will get 20 units instead of 10 units. This means you have got more unit in the same price when market is low and you got less unit in same price when market is up.
So, you should not STOP your SIP when stock market is down.
#3 Avoid Redeeming your Mutual Funds
The third important thing you need to understand when stock market is falling is avoid redeeming your mutual funds. Many investors make this mistake.
Investors think that it is easy to get out of market at this stage and re-enter back before recovery. But it is almost impossible because no one can time the market.
Additionally, when you exit from mutual funds or stocks when market is low you will end up making losses. You may need to pay exit load if it is mutual fund investment. If profit from your equity investment is above 1 lakh, you need to pay long term capital gain tax.
So decision of redeeming mutual funds or selling all your stocks under Stock Market crash condition & reentering again when market is up is totally wrong.
#4 Invest only if you have surplus money
When stock market is falling many people think about making investment. Investing money when market is down is very good option. However, make sure that you select fundamentally strong stock for the investment. The company where you are investing money should be cash rich with lot of working capital.
As it is very risky to make investment during stock market crash. It would suggest that invest only if you have surplus money in hand and you are ready for losing money.
#5 Don’t Invest money in the Market at Single GO
If by chance you want to invest money in the stock market when market is falling, avoid investing lump sum money at single go. We cannot predict the stock market it may further go down. So, always prefer SIP option and never invest your money in the market at single GO.
Over to you –
What you are planning to do in current stock market crash?
Do you want to exit from stock market or you prefer to stay invested?
Please share your opinion in the comment section given below.