How To Deal With The Bear Hug

Outlook Money|July 2020

How To Deal With The Bear Hug
Defer some financial goals or take loans and diversify existing portfolio but avoid exiting in the red

Sumit Gupta (name changed), a first-time investor, put in around ₹3 lakh in an equity fund in 2018, hoping to have enough returns to buy a nice car when he turns 30. Hoping for 14-15 per cent annualised returns, Gupta hoped to have around ₹4.5 lakh by 2021. However, in April, still 10 months away from his 30th birthday, he got the shock of his life when he found the value of his corpus reduced to just over ₹2.10 lakh. While his portfolio has recovered a bit, he is still far from his goal.

Gupta is not alone. Many investors face this crisis as equity markets have washed off most of the gains they made over the last few years. While Gupta has postponed his plans to buy the car, it’s an option not every investor has. There are many whose dates of realisation of goals are fast approaching with no possibility to push them to a later date: parents who were saving for their offspring’s wedding or their higher education. Or those who were saving for retirement. These events and goals cannot be postponed. But with their corpus significantly eroded in value, what can such investors do?

According to Archit Gupta, Founder and CEO, Cleartax, while it won’t be wise to exit the market at this point, redeeming some of their investments might be the only option for such investors.

“We understand that children’s education and future planning are of utmost importance. As the achieving of the goal cannot be deferred, it becomes essential to redeem at least some part of the investment,” he says.

He advises such investors to pull out around 60 per cent of the corpus and utilise it for their requirement, while the remaining portion continues to stay invested.

“If 60 per cent of the portion is not sufficient, then look for other means instead of pulling out the entire investment, because that would mean exiting in the red which should be the last option,” Gupta argues.


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July 2020