Mutual Funds Investment | Mutual Funds Redemption : Stopped investing in mutual funds? Now regretting, know what should be done, have stopped investing in mutual funds? Now it is happening, sorry, know what should be done
Regrets on Mutual Funds Redemption Decision? Know the solution (Photo-istock)
- There are sometimes rapid changes in the stock market.
- There is a rapid decline in investment value.
- Stopping investing in mutual funds in panic leads to losses in the long run.
Last year, when the stock market collapsed due to the lockdown imposed due to Kovid-19, many investors got their mutual fund units redeemed. Fearing that their investment value would decline further, many investors panicked and went for redemptions and closed their investments. But, within a few months, the Indian stock market saw a lot of momentum and reached its all-time high. The dynamics related to the stock market changed very rapidly and any reaction out of panic, such as redeeming mutual funds, would not prove profitable in the long run. Those investors who retained the investment benefited but those who redeemed their units at lower valuations suffered losses.
If you come across investors who have redeemed their investments, now is not the time to keep on regretting it, but now is the time to rectify that mistake and get your investment back on track. It is better to delay than to do anything. Here are some useful tips to help you re-streamline your mutual funds investments.
Consider the amount received on redemption
It is possible that you have already used a portion of the amount redeemed. So, to get started, check how much of the redeemed amount is still left in your bank account. If it is possible to reinvest the entire amount, do so. If it is not possible to do so, try to keep that amount as it is. If the full redeemed amount is available, be ready to invest this amount in a staggered pattern.
Restart all your SIPs
Immediately restart all your discontinued Systematic Investment (SIP) plans with the same ratio and same tenure. You should not be discouraged by the high levels of the market. Remember that the timing of the market does not help you create wealth, but the time spent in the market helps you create wealth over a long period of time. If deemed necessary, you can discuss with your financial advisor about adding a new scheme to the portfolio.
Buy extra whenever the market goes down
The market continues to fluctuate and undergo correction phases in the short term. It is advised that you should keep a careful watch on this type of fall in the market. Since you have been out of the market for a year, therefore, you need to be aware of the market movements before investing your cash balance in the market to buy additional units. You can consider adopting the ‘buy on dips’ strategy of mutual funds. This will enable you to use the cash available with you or the amount redeemed wisely.
Most mutual funds allow investors to buy additional units in their existing schemes or to purchase an entirely new scheme. This helps you reduce the Net Asset Value (NAV) at the average purchase price of your investment, and give you higher returns when you finally sell your units. It is important that when the market is down, you are able to collect more units at that time. As a result, when the market recovers and rises again, your investment value will also increase. This type of approach will help you to overcome your previous year’s loss to some extent.
But, when making additional purchases, you should also keep in mind that you do not invest your entire amount in one turn. Sometimes doing so proves to be dangerous. Instead, you should invest your cash slowly and steadily over a period of 6-12 months. This type of strategy will help you keep your investment cost low as over time the prices of the units purchased will come down to average levels. If you are unable to pay attention to the market regularly, it would be a good idea to contact your investment advisor for additional buying so that you can get additional buying guidance.
Remember that the stock market has its ups and downs. So, as a mutual fund investor, you have to be patient, disciplined and make regular investments. Be careful while taking steps regarding your mutual funds. Don’t panic. When the market goes down, before making a redemption decision, ask yourself do you need the money? Is your financial goal (for which you started investing) getting closer? If the answer is ‘no’, avoid selling your investment. Holding off long-term investments not only affects your financial planning, but can also cause damage that can be difficult to recover.
Investments made in mutual funds are meant for wealth creation in the long run. The volatility in the stock market improves the chances of creating real wealth in life. Regularly buying more when there is a downtrend and focusing on your financial goals regardless of the situation in the market will help you immensely. This is a successful policy. Try this and try it.
(The author of this article is Adil Shetty, CEO, BankBazaar.com)
(Disclaimer: This information is being given on the basis of expert reports. Markets are subject to risks, so take your own advice before investing.) (This article is written for informational purposes only. It is for investment purposes only.) should not be construed as financial or other advice)
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