Falling markets? simple solution…

“I have invested in M/F near 2.9 lacs in various funds in various firms. Now NAV of all the funds is lower than the NFO. It is worth about Rs. 1.9 lakhs. Should i continue or exit?”

In such extra-ordinary times this is a pretty normal question. All those investors who were brave in Jan ’08 when the index was at 21000 are now panicking. Co-incidentally the index at the time of writing is HALF of the Jan index! Risk, they say is counter-intutive. When you think is highest it perhaps is lowest and vice-versa.

What should this reader do? Simple he should stay invested. Assuming that the investments were made in a lump-sum his portfolio could be down anywhere between 40 to 70 percent. It is all right to lose money, but do not lose the lessons of investing.

What caused it? – Lack of understanding that a market which goes up can also come down. The speed with which the equity markets went up were matched in viciousness in the downward journey. If he knew AND he was investing, he was understanding the risk. However if his agent (or relationship manager) told him “next month the index will be 25000 and he believed it, it is his fault – NOT the markets’ fault!

Most agents and relationship managers are rewarded better on a lump-sum basis than on a SIP basis. However, readers should push the agent for a SIP form rather than a lump-sum investment.

Investing through a SIP is a safe and sensible way of investing – so all readers who have invested should start a sip at least now. Over the next 4-5 years you will get a return superior to debt market returns. However stop tracking your portfolio on a daily basis. Just relax and let the fund manager do his job. Most people who have done a SIP in a balanced fund (like Templeton India pension plan) for the past 4 years are also in the red. However if the markets were to suddenly bounce to 14000, they might suddenly be in the black!

In all market conditions remembering that equity markets shudder, quiver and fall – dramatically. However, it is the markets resilience that it comes back usually stronger. So go out there and read about equity markets, keep learning, do a SIP and please appreciate that equity markets are for the long term. When I say long term I mean 7 years plus – and I have friends who think I am being aggressive. The real good fund managers normally mean 20 years as a long term period!

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