As Nifty falls by more than 8 per cent in three months, what should mutual fund investors do?

Markets lost over 12 per cent from April 5, 2022, to date, while it dropped little more than 8 per cent over three months. Continue reading to find out what MF investors should do.

Investors that are significantly engaged in equity funds or long-term Debt Funds may notice a drop in returns. In fact, individuals who began investing recently will see their portfolios turn red. However, it is strongly advised not to panic. It will lead to wrong judgments, which can have a negative impact on long-term wealth building.

Nifty 50 has been declining since October 2021. If we examine the returns of Nifty 50 Total Returns Index (TRI) from October 2021 to the present, we can see that it has dropped by about 14%. Furthermore, the broader markets have fallen in line, with Nifty Mid-Cap 150 TRI and Nifty Small-Cap 250 TRI falling 14.8 per cent and 15.4 per cent, respectively. Similarly, when we look at the returns of Large-Cap, mid-cap, and small-cap funds during the same time frame, they were negative 15.4 per cent, 14.4 per cent, and 13 per cent, respectively.

According to the table above, sectoral and thematic funds such as auto, infrastructure, consumption, dividend yield, energy, and so on outperformed the frontline and broader market indices. Indeed, broader market indices beat frontline indices. However, when we look just at the performance of equity funds, eliminating sectoral, thematic, and index funds, the majority of the funds delivered returns ranging from negative 12 per cent to 15 per cent.

What can investors do?

If you are a disciplined investor with a well-planned Systematic Investment Plan (SIP) in place, you need not be concerned since you will be purchasing more units with lower Net Asset Values (NAV) in the current market condition. However, if you are a lumpsum investor in equity funds with a short-term investing strategy, any market relief rally would be an excellent time to exit. However, if you are a lumpsum investor with a long-term investing strategy, this would be an excellent chance to add more units gradually.