The NIFTY has corrected 20% from the highs. When I started the Mutual fund journey in the beginning of the year, I was told that this is the best investment option for a new investor. The markets have now corrected and my investments are in deep red. I need to stop investing as Mutual Funds seem to be a very risky option.
Well, if these are your thoughts than let me put your mind at ease by showing you with historical numbers why you should never stop investing during market corrections.
I am going to show live examples of a Axis Mid Cap Fund which most of you would have in your portfolio.
Rakesh Started his investment journey in 2011, investing 50000 as monthly SIP in Axis Mid Cap. Lets see how his journey has been so far
The first year was extremely tough. As you can see the investments actually turned into deep red. He was staring at a -22% loss. Rakesh decided that he would stop his Mutual Fund SIP’s as he could not see how he would be able to make up for his loss?
Well, his advisor, let’s say the good fellas name was Sanil😊, sat down with him and the first thing he asked him was when would Rakesh do bulk of his shopping for clothes. Rakesh replied that though he would buy some stuff most of the year most of his shopping would be done during the discount season as he could get his favorite Levi’s Jeans and Polo Shirt at a 35% discount. Sanil explained in the same way you are able to collect more NAV’s for your mutual funds with the same amount of investment during market corrections. The penny did click but Rakesh was still skeptical but based on Sanil’s advise decided to continue with his Mutual funds-based SIP’s. Now let’s see what happened 12 months post this decision
Within the next 12 months a -22% loss changed into a 30% gain. (Change of 52% in 12 months) Yes this is how fast the markets can turn. Rakesh was astounded instead of walking with a 58 thousand loss he was now in the green by 3.43 Lakhs.
Let’s look at another period of the downside and the rising from the ashes
Investment started in April of 2019 fetched a negative return of -24% in the next 12 months. Continuing with the SIP changed the equation completely in the next 12 months. The total return in a 24-month period was 34% (an astounding claw back of 59% within a year’s timeframe)
Now let’s look at the fund performance since inception
A 13.6L investment has turned to 39.26L corpus. A profit of 25.66L translating into a 188% Absolute return and a 17.62% CAGR return. The icing on the cake – The markets are still down by 20%. Imaging what happens to these numbers when the markets return back to normal? This is the reason for the saying mutual funds sahi hai.
The above numbers are with constant 50K investment. The Joker in the pack is either One time investment or increasing your SIP’s during market corrections. This will significantly increase your returns. Definitely do this if you can.
Every investor needs to accept the reality that the markets will Fall and Rise. Do not fear the volatility, look at the downturn as an opportunity to get discounts and collect more NAVs for the time when markets go up.
Never / Ever stop your Mutual Funds based SIP’s or investments during market corrections. You will never recover from this mistake.
Either continue with your mutual fund-based SIP investments or increase them if you have the capacity during market corrections and you will always be a WINNER
We are now facing a steep market correction. The path for the WINNERS is clearly outlined, take the right steps and prepare for the celebrations.