Why Market is Down – Should You Invest in a Mutual Fund When the Market is Down?

Why Market is Down

“Be fearful when others are greedy, be greedy when others are fearful”- Warren Buffett

The market has and will always be a volatile place. History has shown us some of the most significant crashes like the 1992 crash due to the Harshad Mehta Scam, the financial crisis of 2008, and the 2020 crash due to the outbreak of COVID.

The ups & downs of the market have been impacted due to a wide range of factors, from wars to political instability to banking crises to government policy decisions! However, the market has always overcome the crash and has made consistent recoveries.

Since the market is down again, existing investors, as well as new investors, are in a dilemma as to whether or not to invest in mutual funds. Well, in this blog, we’ll be answering the mentioned questions to clear your misery:

  • Why is the market going down?
  • What should be the strategies for the new investors in the situation?
  • What should the investors do in this bad time?

Why is the market going down? 

The market either goes up or down for two following reasons.

  • Fundamental-
    These states the performance of the individual stock or company in the market.
  • Liquidity-
    This means the excess amount of money in the system chasing those stocks.

This current situation is a replica of the 2008 financial crisis that happened in the U.S.
The excessive liquidity that came during COVID took the market up very sharply.
But if you go back to 2009, you could see that from the peak it fell from almost 8300 level Sensex!

Thereafter, when the U.S federal started cutting rates, then there was ample money or liquidity in the system. This led the market to have a weak kind of recovery.

However, in 2010, the market reached its peak back. Thus, a similar stance is happening right now as because of the high inflation the government is raising interest rates & which is sucking away the excess money from the system. The market will remain volatile for some time.

The stock market has always given a positive result if invested in the long term. One has to bear the volatility & because of this, investing in equity mutual funds or equity direct stocks should be for a longer period of time in order to ride that downturn curve

What should be the strategies for the new investors in this situation? 

Just as a Bad time doesn’t stay with us forever, a bad market is also not here to stay forever!”- Tanwir Alam, CEO & Founder of FINCART

New investors are always in a dilemma with regard to investing and now with the market going down, they become even more dubious.
Instead, new investors should take advantage of the falling prices of the stocks. They should continue with their investments & secondly, if possible, increase their SIP. Also, if the market corrects further then they should also invest in lump-sum to take advantage of this situation.

Historically we have seen that many times when the market has crashed it has eventually risen again. So, before the flight takes off, focus on accumulating the maximum number of units. This will ensure you create significant wealth.

Try to follow the winning formula of most successful investors when they come and invest in equity mutual funds or the stock market, they come with a great degree of patience. This is a key to success when it comes to investing!

What should the existing investors do in this bad time?

It is extremely difficult to track to what time horizon the market will remain rage born, flat, or will keep going down. The cardinal rule of investing in the stock market or equity mutual fund is that the stock market has always delivered a positive return.

Irrespective of the scenarios like the Iraq war, the U.S subprime crises, the southeast Asian crises & now the Russia-Ukraine war, the stock market has been successful in delivering returns.

Therefore, the existing investors should focus primarily on their goals & not on the market. If your goals are coming nearby then try to come out of the equity market and get into less risky assets. But if your goals are far away then you should keep investing.

Conclusion: 

People who have been successful in availing a significant amount of money when the market is down, are all because of PATIENCE!
It is the biggest virtue when you invest in an equity market or equity mutual fund.

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