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The global markets collapsed and the Sensex followed suit, leading to panic among equity investors. The Reserve Bank of India earmarked Rs 20,000 crore to enable the banks to meet the liquidity requirement of fund houses. Were you among the investors who decided to exit? Itanagar-based Tridip Choudhury decided to cut his losses. This 45-yearold private secretary in the state government had recently converted to equities. “I started investing in mutual funds last year because everyone was making money through them,” he says. But between 1 May and 20 October, equity funds registered a drop of 39%. Understandably, investors like Choudhury are disillusioned. “I am back to investing in safer alternatives like bank deposits,” he says.

Karthik Amrutesh, a 32-year-old IT consultant from Bengaluru, has invested close to Rs 5.5 lakh in mutual funds. Though he has not stopped his systematic investment plans (SIPs), he has changed his strategy for new investments. “I bought fixed deposits of Rs 2 lakh instead of investing in mutual funds as I had planned earlier,” he says. The reason is obvious. Amrutesh does not want to take the risk of his portfolio being battered further. “With bank deposits, at least I have guaranteed returns,” he says.

The question doing the rounds now is: should you stop your SIPs or lumpsum investment because the market is going down? Anil Chopra, CEO and director, Bajaj Capital, is clear. “All investments are made with a goal in mind. If the goals haven’t been achieved, the investments shouldn’t stop, no matter what the market condition,” he says. If you stop your investments now, you will be saddled with losses and have a limited opportunity of gaining from a possible rise in the markets. Exit your funds now only if you need the money in the next couple of years because then there will be little scope of regaining the losses if the downturn in the markets continues for a few more months.

Bandna Bedi, 43 Jaipur Invested Rs 80,000 in funds in 2008 Investment: • She started investing in mutual funds in March 2008 through two SIPs. • Her portfolio has suffered a 30% loss. Mistakes: • She did not conduct any reasearch on the funds before investing. • Having burnt her fingers, she is not investing more money in equity funds. Learnings: • She should develop an investing strategy for the long term. • She should buy funds which have been consistent performers. “I know it is a good time to buy, but given my losses, I don’t want to take more risk.”

Chopra advises his clients to increase investments in equity diversified funds. He advocates the golden rule of investing: “Buy low, sell high”. Despite this, people like Bandna Bedi from Jaipur are hesitant to start buying. “I know that it is a good time to buy, but my fund portfolio is in the red by 30%,” she says. Bedi is wary of losing more money in the current market. “Wouldn’t it be better to wait till I am sure that the market will go up?” she asks. Chopra doesn’t think so as investors shouldn’t try to time the market.

Once you’ve decided to buy, don’t look at the recent returns alone to choose funds. If you opt for this yardstick, you’ll buy a fund like ABN Amro Dividend Yield, which has given better returns in the past six months, over, say, Reliance Regular Savings fund. So you will end up with a one-star rated fund instead of a five-star fund. Align the choice of fund category with your goals, risk profile and investment acumen. Stick to the consistent performers which have good ratings. Market slides also drive home the advantage of SIPs over lump-sum investments. SIPs spread your investments over a period which averages out the cost. If you invest the same amount at one go and the market dives immediately afterwards, your losses could be higher (see SlP versus Lump Sum).

The bottom line is that the mutual funds are down, but not out. Chopra says, “As long as mutual funds give about 15% returns in the long term, investors shouldn’t complain.” If you manage this, you will beat both inflation and debt instruments hands down.

SlP versus Lump Sum The assumption: Rs 50,000 invested in HDFC Top 200 fund on 9 Jan 2008. A monthly SIP of Rs 5,000 started on the same day.
Fund name	Mode of investment	Total cost (Rs)	Current market value* (Rs)	Loss/gain (Rs)
HDFC Top 200	Lump sum	50,000	27,748	-22,252
HDFC Top 200	SIP	50,000	37,086	-12,914
Systematic investments reduced loss by Rs 9,338 in a period of 10 months *As on 22 October
What you should do now • Do not discontinue SIPs even if the funds are giving negative returns. It will blow over. • If you intend to use your fund investments in the next twothree years, shift the money to a safer debt option. • If you have invested with a long-term horizon of about five years or more, stay invested.