Fund Selection in the Bear Market

Safety or Return – Your Fund Selection Options in the Bear Market

The bear market is a cause of concern for every investor. Whether you are investing in the stock market or you are a safe investor and invest only in mutual funds and ULIP plans, stock market fluctuations impact your investments.

In the bear market when the NAV/fund value goes down it is difficult to keep your cool and do nothing. This is why experts consider patience a virtue for investors.

 “The stock market is a device to transfer money from the impatient to the patient.” Warren Buffett

India has witnessed a bear market during the last few months. Reasons could be any but the reality remains, investors’ wealth has been eroded.

There are primary two questions investors are confused with.  What to do to protect the wealth? What to do to take advantage of the attractive prices?

If you are also dealing with these questions, here we present what to do in the bear market.

Investment is always about the objective of investments. It could be return, safety, risk, short-term, and long-term.

  1. Safety

If your primary objective is safety, you need to worry about the bear market. Equity-linked investment value deteriorates in the bear market.

It is advisable to move from equity-linked fund to debt /bond fund. This prevents further erosion in investment value.  

  1. Return

If the return is your agenda, you can take advantage of the bear market. This market gives an opportunity for the investors to invest at attractive prices.

Investment done at attractive prices gives good return in the long run. Experts say your return is decided at the price you purchase and not at the price you sell.

Buying cheap and selling costly is the fundamental rule of any business including investment decisions.

  1. Risk

If you have an appetite for the risk capital, a bear market is the best time to enter the market. The market could further go down and you may lose some capital.

If you have already invested in ULIPs, check your fund selection. The bear market is the time to move from debt fund to equity fund.

  1. Short Term

If you need money in the short term, it is advisable to shift from the equity-linked fund to debt/bond funds. This way you can save your investment from further deterioration.

If you foresee liquidation of your equity-linked investments to provide for a planned expense, it is better to switch from equity to debt fund few months in advance to protect the fund from the uncertainty of the bear market.

  1. Long Term  

“If you are not willing to own a stock for 10 years, do not even think about owning it for 10 minutes.” Warren Buffet

If you don’t need money in the short-term and your horizon is long-term, a bear market is an opportunity to switch from debt fund to equity fund. Equity prices are low in the bear market. This augurs well for higher long-term return.

Your bear market strategy should be based on your investment objectives mentioned above. Know your risk appetite, liquidity requirements, and take action either to protect your fund or to take advantage of the price opportunity.

The bear market is not easy to deal with. Investors tend to take a haphazard decision in fear. But when you know your objectives well, you know the options available well; you will be saved from taking a decision which is detrimental to your portfolio.

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