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How do benchmark index crashes impact long-term investment strategies?

Ramalingam

Ramalingam Kalirajan  |8604 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jan 20, 2025

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 - Jan 13, 2025Hindi
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For long-term investors, how does such a crash in benchmark indices like Sensex and Nifty50 affect portfolio strategies? Should they focus on rebalancing?

Ans: Market crashes can trigger anxiety, even for seasoned investors. However, they also present opportunities for long-term investors. It’s important to approach such situations calmly and strategically.

Key Effects on Portfolio Strategy
Temporary Loss of Value
A crash can lead to a drop in portfolio value. This is usually temporary for long-term investors. Patience is critical during such periods.

Increased Volatility
Expect heightened market volatility. Equity prices might swing drastically. This should not alter long-term goals.

Opportunity to Acquire Quality Assets
Market dips offer a chance to buy strong-performing assets at lower prices. Disciplined investing during these times can boost long-term returns.

Importance of Rebalancing
Rebalancing is crucial after market corrections. It ensures the portfolio remains aligned with your investment goals and risk tolerance.

Why Rebalancing is Needed
Asset allocation may shift during a market crash. Equities might decline more than other asset classes, altering your portfolio mix.

How to Approach Rebalancing
Review the allocation of your equity, debt, and other assets. Shift funds strategically to restore the original allocation.

Frequency of Rebalancing
Rebalancing should be done periodically, but avoid overdoing it during short-term market fluctuations.

Avoid Emotional Decisions
Stay Focused on Goals
Market crashes are temporary. Stick to your long-term goals instead of reacting impulsively.

Ignore Market Noise
Avoid frequent monitoring of portfolios during such times. Focus on the bigger picture.

Avoid Panic Selling
Exiting investments during a crash locks in losses and erodes potential recovery gains.

Strengthening Portfolio Post-Crash
Diversify Further
If diversification seems inadequate, add sectors or geographies to your portfolio. This spreads risk better.

Focus on Quality
Allocate more to fundamentally strong funds or stocks with a proven track record.

Increase Equity Exposure Strategically
If the market is undervalued, increasing equity investments could be beneficial.

Tax Implications to Consider
Keep taxation in mind while rebalancing:

Selling equities during the crash may trigger short-term or long-term capital gains taxes.

Review the tax-efficiency of debt funds if reallocating funds from equities to fixed-income instruments.

Benefits of Professional Guidance
Consider working with a Certified Financial Planner (CFP) to:

Assess your portfolio post-crash.
Implement tax-efficient rebalancing strategies.
Stay disciplined in adhering to your financial plan.
Final Insights
A crash in benchmark indices like Sensex or Nifty50 is part of the investment cycle. Long-term investors benefit most when they stay calm, focused, and disciplined. Rebalancing can restore balance in your portfolio and prepare it for recovery. Stick to your strategy and remain committed to your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment
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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Ramalingam

Ramalingam Kalirajan  |8604 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 26, 2024

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Is mutual fund market volatile and on verge of collapse just as in harshad mehta time
Ans: Thank you for your question about the current state of the mutual fund market and whether it is volatile or on the verge of collapse, similar to the time of Harshad Mehta. Your concern is understandable, given the importance of making informed investment decisions.

Understanding Market Volatility
1. Nature of Market Volatility
Market volatility refers to the fluctuations in market prices over a short period. It’s a natural part of investing and can be influenced by various factors such as economic data, geopolitical events, and investor sentiment.

2. Current Market Conditions
The mutual fund market, like any other financial market, experiences ups and downs. Recent times have seen fluctuations due to factors like global economic changes, interest rate adjustments, and pandemic-related disruptions.

Comparing with Harshad Mehta Era
1. The Harshad Mehta Scam
The Harshad Mehta scam of the early 1990s involved fraudulent manipulation of stock prices using bank funds. It led to a market crash and significant financial losses for many investors.

2. Differences in Market Regulation
Since the Harshad Mehta era, market regulations have significantly improved. The Securities and Exchange Board of India (SEBI) has implemented stringent measures to prevent such frauds. This has increased market transparency and investor protection.

Evaluating Mutual Fund Stability
1. Diversification of Mutual Funds
Mutual funds invest in a diversified portfolio of assets, spreading risk across various securities. This diversification helps in mitigating the impact of market volatility on your investments.

2. Professional Management
Mutual funds are managed by professional fund managers who actively monitor and adjust the portfolio to optimize returns and manage risk. Their expertise helps in navigating market fluctuations.

Current Market Outlook
1. Economic Indicators
Current economic indicators such as GDP growth, inflation rates, and corporate earnings suggest a mixed outlook. While some sectors show growth potential, others may face challenges.

2. Global Influences
Global economic conditions, including trade policies and geopolitical tensions, can influence the market. Investors should stay informed about these factors as they impact market stability.

Investment Strategies in Volatile Markets
1. Long-Term Perspective
Adopting a long-term investment perspective helps in weathering short-term market volatility. Historically, markets have shown a tendency to recover and grow over the long term.

2. Asset Allocation
Diversifying your investments across different asset classes such as equities, debt, and gold can balance risk and returns. This strategy reduces the impact of volatility on your overall portfolio.

3. Regular Review and Rebalancing
Regularly reviewing and rebalancing your portfolio ensures it remains aligned with your financial goals and risk tolerance. Adjusting your asset allocation based on market conditions can optimize returns.

Importance of Consulting a Certified Financial Planner
1. Personalized Advice
A Certified Financial Planner (CFP) provides personalized advice based on your financial situation, goals, and risk tolerance. They help you make informed decisions tailored to your needs.

2. Expert Management
A CFP continuously monitors your investments and market conditions. They make necessary adjustments to your portfolio, ensuring it remains on track to achieve your financial objectives.

3. Risk Management
A CFP employs strategies to manage risk and optimize returns. Their expertise helps in navigating market volatility and safeguarding your investments.

Final Thoughts
While the mutual fund market, like any financial market, experiences volatility, it is not on the verge of collapse like during the Harshad Mehta era. Improved regulations, professional management, and diversified portfolios contribute to its stability.

Adopting a long-term investment perspective, diversifying your portfolio, and consulting a Certified Financial Planner can help you navigate market fluctuations and achieve your financial goals. Your proactive approach to managing your investments is commendable.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |8604 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jan 13, 2025

Asked by Anonymous - Jan 13, 2025
Money
Given the significant drop in Sensex and Nifty50, how should individuals with systematic investment plans (SIPs) approach their investments? Should they increase their contributions?
Ans: A market dip presents a unique opportunity for SIP investors. Assess your SIP contributions. Ensure they align with your long-term financial goals. Market fluctuations are normal and temporary.

Benefits of Market Corrections
When markets drop, you get more units for the same SIP amount. This is rupee cost averaging in action. Over time, it reduces the average cost per unit. This helps in compounding returns.

Should You Increase SIP Contributions?
Increasing SIPs in a market dip can be rewarding. If your finances allow, enhance contributions. It amplifies long-term wealth creation. But avoid overburdening your budget.

Revisit Financial Goals
Ensure SIPs match your future aspirations. Align them with your retirement, child’s education, or wealth-building goals. Clarity helps maintain focus.

Assess Risk Appetite
Understand your risk tolerance during volatile markets. Stick to your planned asset allocation. Avoid panic-driven decisions.

Avoid Stopping SIPs
Stopping SIPs during corrections hampers wealth creation. Continue investing regularly. It benefits from market recovery.

Monitor Fund Performance
Track the performance of your selected funds. Ensure they meet benchmarks and objectives. Replace underperformers with better alternatives if needed.

Benefits of Regular Fund Investing with CFP
Regular funds provide professional guidance. They include a Certified Financial Planner’s expertise. Direct funds lack advisory benefits. They might miss personalized strategies.

Actively Managed Funds Over Index Funds
Index funds follow the market. They don’t outperform it. Actively managed funds can beat indices. Fund managers identify growth opportunities.

Tax Implications of Selling SIP Units
Equity funds’ LTCG above Rs 1.25 lakh is taxed at 12.5%. STCG is taxed at 20%. Debt fund gains are taxed as per your slab. Plan redemptions wisely.

Focus on Long-Term Vision
Market fluctuations are temporary. SIPs are for long-term goals. Patience ensures better results.

Maintain Emergency Corpus
Ensure an emergency fund before increasing SIPs. It covers unexpected expenses. It prevents financial stress.

Review Insurance Policies
Check existing LIC or ULIP policies. They may offer lower returns. Consider surrendering low-performing policies. Reinvest in mutual funds for better growth.

Seek Certified Financial Planner’s Guidance
A Certified Financial Planner offers personalized advice. They align investments with your goals. They help maximize returns.

Finally
Market dips are opportunities, not threats. Continue SIPs with discipline. Align contributions with goals and risk. Seek professional guidance when needed.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

..Read more

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Nayagam P

Nayagam P P  |5501 Answers  |Ask -

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My son got 98.33 Percentile in JEE mains With OBC category. His General Rank is 25663 and OBC RANK is 6764. We are looking for BTECH ECE branch any good NIT or IIIT. Please suggest me which NIT or IIIT we're getting. or pls suggest Which is very good course in NIT or IIT for High & better placement option. Our Home State TAMILNADU . We are So Much Confused.
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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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