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Did Demonetization Affected Your Mutual Fund Investments? Know The Effect of Demonetization on Mutual Fund - ABSLMF

Demonetisation shook your mutual funds? Keep calm and carry on

Feb 03, 2017
3 mins | Views 96

Ram was on a family trip in Bhutan on 8th November 2016 when the demonetisation move was announced. Being blissfully unaware, he was enjoying the last few days of his vacation in Thimphu. That is when his friend called him and broke the news. The effect was instant. Ram’s mood turned sour as he thought of what lay ahead.

Ram faced difficulties over the next two days of his trip and returned home completely harassed. His mood darkened further when he saw the net asset value (NAV) of his mutual fund investments dipping sharply. He was worried how he’ll buy the house he was investing for. He was thinking what will happen to his other financial goals. Tearing his hair, he called his financial planner. The latter calmed him down and showed him the bigger picture.

What about you? Has demonetisation affected your mutual fund investments too?

    Demonetisation and the market effect

  • Like Ram, other investors too were caught off-guard. The result? The share market’s BSE Sensex index opened with a 1,300-point loss. The next few days were volatile too. By the month end, the Sensex was down around 1,000 points (3.4%). Naturally, the NAVs of mutual funds reflected this tumble.

    Should you worry? Of course, not! Here is why:

  • The volatility is for the short term.

  • Yes, the markets are reeling from the after-effects of demonetisation. But this volatility may be corrected soon. Many experts believe that demonetisation was a bold and unprecedented move. It may cause some short-term woes but is expected to be beneficial for the economy in the long run. Yes, the current market volatility may cause some jitters for your mutual funds. But you should relax. Over the next year, the market may correct itself. Your mutual fund portfolio should be back on track. And thus, Ram’s long term financial goals may not even know about demonetization.
  • All you need is rebalancing.

  • Your investments might be witnessing some unexpected movements but that is no reason for you to worry. What you need to do is rebalance your investment with strategic asset allocation. If your equity based investments are seeing a rapid downturn, more investment should be made in equities.

Your mutual fund investments have a long-term perspective.

Do you redeem your mutual fund investments within months of investing? Or, do you wait for a year or two? Do you not continue your systematic investment plans (SIPs) for at least 12months?

Ideally, you should invest in mutual funds for the longer term. This will help them to yield potential returns. As such, periodic volatility should not be a concern. This was what Ram’s consultant told him. The advice soothed Ram’s frayed nerves. Now, it is time for you to calm your nerves too.

    History speaks for itself.

  • The Sensex has seen its ups and downs. You might remember 21 January 2008.This was a historic day. The Sensex lost a whopping 1,408 points to close at 17,605.35, down from 19,013.70. The following day saw another tumble and the Sensex closed at 16,729.94. Two years later, on 21 January 2010, the Sensex closed at 17,051.14. On 10 February 2017, it closed at 28, 946.23. So, do not be intimated by the current dip. Buck up. Good news lies ahead.

Remember, things deteriorate before they get better. Your mutual fund portfolio might have shown a negative return in the last month. The returns might be low in the next couple of months as well. But you have nothing to worry about. The economy is hopeful to take a turn for the better. The markets may improve. And so, might your investments.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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