After Monday's bloodbath, I am contemplating whether it is wise to refrain from further investing? 

Considering the recent market volatility following the tariffs imposed by Donald Trump, I am contemplating whether to hold onto my cash and refrain from further investments. It would be helpful to receive some guidance on how to approach equity investment in the upcoming months. While a market correction can be beneficial in attracting new investors, it is important to consider how to navigate through this period of uncertainty. Analysts have suggested the possibility of a broad-based sell-off leading to panic selling and a prolonged risk-off phase. How should one approach this scenario?

Advice by Nilesh D Naik, Head of Investment Products, Share.Market (PhonePe Wealth)

The broad-based stock market indices are down anywhere between 15-20% from their peaks achieved in September 2024 and the small and midcap indices are down up to 25%. The sweeping tariffs announced by the US last week have spooked the markets globally, including the Indian market. With such a declining trend in the market, many equity mutual fund investors, especially those who are experiencing such volatility for the first time, are bound to be faced with a difficult question - what should they do with their equity mutual funds investments?

While the exact answer to that question may vary from investor to investor, here are five tips to help investors not just survive, but thrive in a falling market. 

1.    Remind yourself that volatility is an inherent characteristic of equities 

One of the most important characteristics of equities is that they offer higher long-term return potential compared to most other asset classes, but with a higher risk or volatility. Generally, investors focus on the first part, i.e. higher long-term return potential, some forget that investors who earn such returns also have to stay invested in equities during market falls, which are quite common. For e.g. over the 20 year period ending December 2024:

> On 34.73% of the days (1723 out of 4961), the market was trading more than 10% lower than its previous peak

>  On 16.45% of the days (816 out of 4961), the market was trading more than 20% lower than its previous peak.

> On 6.73% of the days (334 out of 4961), the market was trading more than 30% lower than its previous peak..

The above data is based on the movement of Nifty 500 TR Index

It’s important to remember that periods of uncertainty often present great opportunities for long-term investors to invest in equities at discounted prices. Like Warren Buffet says.. “Uncertainty, actually, is the friend of the buyer of long-term values.” 

2.    Do not allow your emotions to take over

It’s natural for investors to doubt their investment decision of investing in equities when the market is in a declining phase. So it’s quite common to consider making incremental investments entirely into less volatile asset classes such as fixed deposits, gold, etc. But this is where most investors make a mistake. Investment decisions are best guided by the asset allocation framework. If they  don’t have one already, investors  should try and have a framework in place. For example, if as per the asset allocation, if the desired equity allocation is 50%, investors can make  incremental investment decisions based on this equity allocation framework, instead of deciding based on emotions such as greed and fear.

3.    Stick to your SIPs.. They help in accumulating higher units at lower market levels

One of the most important benefits of SIP is that they help in rupee cost averaging, i.e. they allow investors to accumulate more units of mutual funds when the markets are down, which over long term help improve the return on investments. Unfortunately, some investors tend to panic and stop their SIPs during such times - one of the worst mistakes one can make. So it's important not to panic, and continue the SIPs to avoid regretting later..

4.    Invest lumpsum in a staggered manner

In cricket, they often say when you face a tough bowler, your aim should be to keep the score board ticking and when you face a weak bowler, you should try to hit at least one or two boundaries in an over. Investing after a market fall is like facing a weak bowler. Just like a batsman looks to score more runs when a weak bowler comes to bowl, investors should look to invest additional sums of money when markets correct, besides continuing with their SIPs. 
However, even such lump sum investments can be staggered over a few months to reduce risk.

5.    Keep calm

Lastly, it's human nature to over react to unusual situations and market corrections are no different. During such market falls, investors will often hear doomsday predictions from many people. But what they need to remember is that the stock market follows corporate earnings like a dog on a leash - sometimes leading, sometimes lagging but always connected and correlated. Therefore as long as investors believe in the long term economic growth which drives the corporate earning growth, they shouldn’t get swayed by such doomsday predictions.

These are tough times and it’s difficult to control one’s emotions when one sees losses in the portfolio. But the most successful long-term investors are those who can control their emotions and make investment decisions rationally. Following the above tips can hopefully help investors  make rational investment decisions and make the most of the market declines. 

Disclaimer: Views expressed by the expert are his/her own. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.