On March 13, NSE Nifty saw a massive plunge hitting the 10 per cent lower circuit towards 85000 zones and marking a history for Indian bourses in twelve years. Market participants are concerned over the kind of economic damage the pandemic would lead to and would most likely weigh on the market for a while. Given the suddenness of plunge, it is difficult to predict the impact of COVID-19 or how soon normalcy would return. In the past with virus spreads like SARS, MERS, the economy and markets had returned to normal within months. However, COVID-19’s global spread suggests the effect may take a while.
“It is futile to predict market movements, but in the near-term the global economic impact will be really bad for various industries/ sectors. Hospitality, travel, airlines, discretionary goods, auto industry, you name it, will see a slowdown. As long as the fear is prevalent, markets will be volatile,” says Neil Parikh, CEO, PPFAS Mutual Fund. Although markets might take a while to recover from this significant price damage, the tailspin has spooked investors, who have started questioning their investment strategies. It is important to have a plan in place in case of a downturn. Further, investors should not let short-term market movements impact their longterm investments especially in mutual funds.
As an investor, one should not stop the ongoing Systematic Investment Plans (SIPs) or Systematic Transfer Plan (STP) strategies as volatility is the best friend of such investment strategies in the long term. Discontinuing or redeeming SIPs in a downturn is perhaps the biggest mistake an equity investor can make. It defeats the very purpose of the SIP by denying the investor an opportunity to accumulate more when prices are low. “Volatility in markets is an ideal way to optimally use tools such as Systematic Investment Plans. SIPs are designed to increase unit purchase during weak market conditions and reduce unit purchase at elevated levels. This reduces the cost of purchase (known as rupee cost averaging). Long term investors must welcome such an opportunity to reduce the cost of acquisition of investments,” R. Sivakumar, Head- Fixed Income, Axis AMC.
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