The value of my SIP portfolio is down 20-30% in the current market crash. I have put my money in NFOs too. Should I withdraw my money?

The market landscape has undergone significant changes within a short span of time. Up until September 2024, the Indian stock market was achieving new milestones on a daily basis. However, the situation has since taken a turn. The Nifty 50 has decreased by approximately 14% from its peak, while the Nifty Midcap 100 has experienced a decline of more than 18% over the past 6 months. Additionally, the Nifty Smallcap 250 index has plummeted by over 22% from its peak recorded on December 11 of last year.

The turbulent period in the stock market has had a profound impact on the portfolios of mutual fund investors. Many SIP investors have reported a reduction of 20–30% in their portfolios. Those who had invested in mutual funds of smaller and medium-sized companies (smallcap and midcap) have been particularly affected by this downturn. The value of my SIP portfolio is down 20-30% in the current market crash. I have put my money in NFOs too. What's your prediction for the next few months? Should I withdraw my money?

Advice by Aakanksha Shukla, AVP- Wealth Management at Master Capital Services Ltd.

SIP is the right way

Given the market crash and your SIP portfolio's 20-30% decline, it's generally advisable to remain invested and continue your SIPs, rather than withdrawing, as markets tend to recover over time.  NFOs can be more volatile due to their lack of historical performance. Assess their strategy and suitability based on your risk profile.

SIPs aid in Rupee Cost Averaging by allowing you to invest a fixed amount consistently, regardless of market movements. This approach means you purchase more units when prices are low and fewer when they are high, which can help lower your average cost over time.

Historically, market crashes have often been followed by significant rebounds. By staying invested, you position yourself to benefit from the potential gains as the market recovers. Selling your investments during a market crash can turn potential gains into real losses, as you're liquidating at the lowest point.

SIPs are intended for long-term investment, and market corrections are a normal part of the investment cycle. Don’t let short-term fluctuations disrupt your long-term objectives.

Before making any decisions regarding your existing investment, it's important to reassess your investment goals, and accordingly determine if your strategy needs adjustment. Consider your risk tolerance and whether you're comfortable with potential further losses; if not, you may want to reduce your equity exposure or diversify your portfolio. Seek personalized advice from a financial advisor before making any decisions.

Think of long-term investment

Advice by Swapnil Aggarwal, Director, VSRK Capital

The stock market goes through cycles of booms and busts, and corrections are an inherent part of investing. Although a 20-30% fall in your SIP corpus may be alarming, keep in mind that correction in the market also offers a chance to do rupee-cost averaging. That is, when prices are lower, you purchase more units, and this can work in your favour when the market bounces back.

Predicting short-term market movements is difficult, but history suggests that markets tend to recover strongly after sharp declines. If your investment horizon is long-term, staying invested during downturns can lead to substantial gains over time.

New Fund Offers (NFOs) are more volatile, particularly during uncertain market situations, since they do not have a proven track record. But their long-term prospects are subject to the fund strategy and market situation. If your NFO investments are in line with your financial objectives, it might be advisable to hold on instead of selling at a loss.

Unless you require money in the immediate future, liquidating during a downturn might not be the optimum approach, since it locks losses. Rather, keep your goal in mind and invest regularly to take advantage of market rebounding and long-run growth.