2020 has been a bittersweet year for most investors. We saw the stock markets plunge to multi-year low levels and then quickly back to record heights.
If you’re a mutual fund investor, you may have gone through a range of emotions with every swing of the stock market. A close look at historical data reflects periodic volatility in every couple of years. You don’t have to be alarmed or withdraw your capital because of temporary market fluctuations.
And that brings us to the focal point of this post.
How did you do as a mutual fund investor in 2020?
Good, bad, or okay, let’s find out.
#1 You didn’t redeem or stop Systematic Investment Plans (SIPs) in 2020.
When talking about mutual fund investments, one of the first parameters to gauge your investment competence is whether you redeem or stop your SIPs during volatile market conditions.
The same goes for continuing your SIP. In fact, regular SIPs can help you take advantage of rupee-cost averaging in an automated manner. You accumulate units at lower prices during falling markets/bear phases, which balances out your purchases during rising markets or bull season.
#2 You didn’t follow the herd.
Volatile market conditions can create widespread panic. It isn’t uncommon for investors to flee markets during turbulent times. Monthly data from the AMFI indicated net outflows in equity mutual funds, a rare sight in the past couple of years.
Long-term investors were able to separate this noise and remained invested for longer durations.
#3 You didn’t try to time the market.
Trying to time the market is the litmus test for equity investors. Mutual fund investments are no different. If you’re trying to time the market to establish positions or invest through mutual funds during low cycles, you might as well continue waiting.
Experienced investors understand that no one ever gets the lows or highs in equity markets. One of the ways to create long-term wealth is to invest across all periods.
#4 You became a better investor in 2020.
How did you do across these three parameters? Pick the answers here:
Did you redeem or stop SIPs in 2020?
Did you follow the herd in 2020?
Did you try to time the market?
If your answer to all of these questions is ‘No,’ congratulations, you became a better investor in 2020. However, if you somehow failed to follow suit, you can take a hint from resilient investors. The trick with equity mutual fund investments is to stay put for longer durations to boost your chances of receiving reasonable returns over the long term.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.