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Lost 5 Lakhs in 3 Days: Panicked & Withdrew from Mutual Funds. Now Where to Invest?

Ramalingam

Ramalingam Kalirajan  |7206 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Oct 30, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
Asked by Anonymous - Oct 29, 2024Hindi
Money

Hi i had invested around 60lakhs in mutual fund and got good return of 92lakhs within span of 2 yrs. Now due to recent market crash on October 2024 tht is last week 23rd to till date, i lost around 5lakhs in just 3 days. So i panicked and withdrew all my amount from mutual funds. Now I don't know where to invest and when . I was thinking should i invest in Asset allocator fund for my funds safety? Im confused...kindly help and suggest.

Ans: First, it’s important to appreciate your achievement. Growing Rs. 60 lakh to Rs. 92 lakh in two years is a significant return.

However, the sudden Rs. 5 lakh loss triggered panic, leading to the withdrawal of your investment. This is a common emotional response during market volatility, but markets recover over time. Let’s explore strategies that can align with your goals and build confidence in your future investments.

Understanding the Market Correction
Market crashes, like the recent one, are temporary and part of economic cycles.

Reacting emotionally to short-term movements often leads to missed long-term opportunities. Your withdrawal might have interrupted the compounding growth that mutual funds offer over time.

If you stay invested and manage your portfolio with discipline, you can ride through such fluctuations. The market tends to recover over the long term, rewarding patience.

Why Asset Allocator Funds Might Not Be the Best Fit
Asset allocator funds distribute your money across equity, debt, and other assets based on market conditions. While they reduce risk, they also limit potential returns.

During bull markets, asset allocation funds may underperform compared to focused equity mutual funds. These funds reduce exposure to equity precisely when the market has the potential to grow.

Actively managed funds, where fund managers adjust portfolios proactively, offer better control over volatility and maximise returns over the long term. These funds perform better than funds passively following allocation rules.

Reassessing Your Risk Profile and Investment Strategy
Every investor has a unique risk tolerance. Based on your panic withdrawal, it seems you may prefer moderate to low-risk options.

You can rebuild your investment strategy by balancing risk and return through a combination of equity and debt mutual funds.

Instead of trying to predict market movements, adopt a strategy of gradual re-entry into the market through Systematic Investment Plans (SIPs) or Systematic Transfer Plans (STPs).

SIPs will average out your buying cost, reducing the impact of market volatility. An STP will allow you to move your funds from liquid schemes to equity in small, periodic amounts.

Suggested Investment Plan: Combining Stability with Growth
Equity Funds for Long-Term Growth: These funds are essential for wealth creation. With a 5-10 year horizon, they can offset short-term losses and beat inflation effectively. Large-cap, mid-cap, and flexi-cap funds are good options.

Debt Funds for Stability and Liquidity: These funds can protect your investment during market downturns. Corporate bond funds or short-term debt funds offer better stability compared to liquid funds or savings accounts.

Balanced Hybrid Funds: These funds combine equity and debt exposure to provide stability and moderate growth. They are ideal if you prefer low-risk investments but still want some market exposure.

Gold Bonds as Diversification: Continue holding gold in your portfolio for additional stability. It acts as a hedge during market volatility.

Importance of Regular Funds through a Certified Financial Planner
Direct funds may seem cost-effective, but investing through a certified financial planner ensures expert guidance.

A certified planner helps track your portfolio performance, rebalance investments when needed, and align your portfolio with your long-term goals.

Regular funds through a planner also reduce your emotional involvement during volatile markets, preventing panic decisions.

Capital Gains Tax Implications to Consider
Since your mutual fund investments were equity-based, the gains you made are subject to long-term capital gains (LTCG) tax if held over one year.

For equity mutual funds, LTCG above Rs. 1.25 lakh is taxed at 12.5%, while short-term capital gains (STCG) are taxed at 20%.

Debt mutual funds are taxed according to your income tax slab. Planning your withdrawals efficiently can reduce your tax burden.

Rebuilding Your Investment Discipline
The best approach going forward is to rebuild your portfolio step by step. Avoid lump-sum investments to manage risk better.

Restart your investments using SIPs and STPs to ensure a steady return over time. Market volatility becomes less relevant with such disciplined investments.

Review your portfolio every six months. This will help identify any underperforming investments early and allow you to rebalance if required.

Maintaining Emergency and Opportunity Funds
Keep at least 6-12 months of household expenses in a separate emergency fund. This ensures financial security without interrupting your long-term investments.

Set aside a portion in liquid funds for short-term opportunities or immediate needs. This will prevent you from touching long-term investments during emergencies.

Finally
The market volatility you experienced is temporary. A disciplined approach to investing will give you better results in the long term.

It’s essential to diversify your investments and avoid making sudden changes based on short-term market movements. SIPs or STPs will help you re-enter the market safely, and debt funds will offer stability.

Invest through a certified financial planner to receive professional guidance. This will help manage your emotions and achieve your financial goals confidently.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
Asked on - Nov 03, 2024 | Answered on Nov 04, 2024
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Thank you so much for your guidance and support sir ????????
Ans: You're welcome! If you have any more questions or need further assistance, feel free to ask. Best wishes on your financial journey!

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Please follow these house rules for investing in MFs if your investment horizon is between:

  • 1 and 3 years: Take short term debt funds
  • 3 and 5 years: Hybrid Funds
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Mutual Funds, Financial Planning Expert - Answered on Jul 23, 2024

Asked by Anonymous - Jul 15, 2024Hindi
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Hello , I am in stock market since last 2 years and doing as primary sources of income. After doing very hard work I could only achieve 17% return per year in 2 years. However if I took more risk than could achieve more return but capital sefty is my priority. On other end many small cap and mid cap fund gave 50% per year means 100% return in last 2 years. So I'm highly doubting my skill and want to shift to 1 Mutual fund like small and mid cap 2 Debt fund with 8-10% return 3 FD under my parents account for 8-10% risk free returns , I'm preferring FD more as it's peace full investment and very safe compared to equity markets. Because MF can't give consistent returns and may dip 20-30% in covid like situation Will still invest 20% in equity or MF , current capital 50 L living with family owned house So please suggest what is good or any other good investments suggetion you have.. Thanks in advance
Ans: You've been in the stock market for 2 years. You achieved a 17% return per year. That's impressive, given market volatility. However, you seek capital safety.

Small and mid-cap funds have given 50% returns recently. It’s natural to doubt your skills when comparing. Let’s explore your options.

Investment Options and Analysis
1. Mutual Funds: Small and Mid-Cap Funds

These funds can offer high returns.

However, they come with high risk.

Market volatility can cause significant losses.

Disadvantages of Index Funds:

Lack of active management.

May not outperform the market.

Better to opt for actively managed funds.

2. Debt Funds with 8-10% Returns

Debt funds provide stability and regular income.

They are less volatile compared to equity.

Suitable for risk-averse investors.

3. Fixed Deposits (FD) in Parents’ Accounts

FDs are very safe.

They offer guaranteed returns.

Returns might not beat inflation.

4. Direct Funds vs Regular Funds

Direct funds have lower costs.

But they lack professional management.

Regular funds through a Certified Financial Planner (CFP) are better.

CFPs provide expertise and regular reviews.

Suggested Investment Plan
1. Maintain a Balanced Portfolio

Continue with 20% in equity or mutual funds.

Equity provides growth potential.

Choose actively managed funds for better returns.

2. Allocate to Debt Funds

Invest a significant portion in debt funds.

They offer stability and moderate returns.

Ideal for your capital safety goal.

3. Use Fixed Deposits Wisely

FDs are good for risk-free returns.

Keep a portion in FDs for peace of mind.

Consider splitting FDs for liquidity.

Actionable Steps
1. Diversify Investments

Mix equity, debt, and FDs.

This balances risk and returns.

2. Increase Financial Knowledge

Learn more about market trends.

Understanding helps in better decision-making.

3. Consult a Certified Financial Planner (CFP)

A CFP can guide you effectively.

They offer tailored advice.

4. Regular Reviews

Review your portfolio every six months.

Adjust based on performance and goals.

Final Insights
Your dedication to stock trading is commendable. Safety of capital is crucial. Balancing your portfolio with mutual funds, debt funds, and FDs is wise. Actively managed funds can outperform index funds. Consulting a CFP can provide expert guidance.

Investing in FDs under your parents’ accounts is a safe bet. Debt funds provide stability. Continue a small portion in equity for growth. Regular reviews and adjustments are essential for long-term success.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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