(a) Redeem
(b) Stay Invested
(c) Stop SIP.
(d) Continue SIP.
2. Let us examine them to make fair conclusions.
(a) Redemption. All funds have fallen down significantly in value and redeeming implies you will be realising the losses which are notional as of now. Sooner or later, the markets have to return to their previous levels thus restoring the value of your investments. A call to redeem funds would be more prudent when markets have recovered and the decision will solely be on the basis of the particular funds' performance. If one feels the need of these funds now, then he was probably wrong at the first place in keeping funds required for now/next five years in Equity. Eg. Say you had invested Rs 1 Lakh which is equal to Rs 70k today. You redeem the bearing loss of 30k. When you re-enter later, your investment will have to work from where you put it again, missing out on the intermediary ride. If you re-enter when markets have recovered 10% from today's level, subsequently presuming full
recovery of market after one yr, the fund value will be approx 90 k. But had you stayed; it would be back to 1 lk. So effectively you miss out on the 10% growth during the period when you kept the funds out of the market.
(b) Staying Invested. If you stay invested, your funds value will fluctuate as per the market levels. But you will be spared the agony of trying to time the market, which no one can. The chance of missing out on sudden upside movements will be minimal and you would be able to avoid the risk of re-investment.
(c) Stopping/Continuing SIP. SIPs help in averaging out the cost over time. Say if one-unit costs Rs 10/11/12/13/9/7/6/8/9/11/10/8 at the beginning of each month of the year and you invest a fixed amount each month, then the cost per unit after 12 months will be about Rs 8.9. Whereas it will be very difficult to time the start of SIP/bulk investment to get this averaged price. Continuing with the SIPs is the best way to even out the volatile graph of market movements and benefit from cost averaging.
3. We can, therefore, fairy deduce the following: -
(a) Don't Redeem now and stay invested till markets recover. Review fund performance after that.
(b) Don't stop your SIPs in Equity Funds-continue as earlier (increase if possible)
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