Synopsis
In the long run, paying a high fee or expense, especially in a down market, may hurt his portfolio’s returns. ETFs, index funds, and deposits are examples of appropriate products.

Kunal is 30, has a well-paying job and good career prospects. He has been able to save money every month quite comfortably for the past four years. He has invested primarily in equity shares, apart from the regular retiral deductions. Kunal is worried about the way his equity investments have been performing of late and wonders if there is any point in putting more money into this losing asset class. His view is that he should put a hold on all savings and investments and start again later if things begin to look up. In the meantime, he plans to go on holidays, buy some latest gadgets and in general have a good time with whatever corpus he has accumulated so far. He wonders if it is a good idea.
As a first-time investor, it is natural for Kunal to feel discouraged with the way his investments have been performing. However, the point he is missing here is that the markets will improve and get better, and he should be in a position to benefit when that happens. The only possible way to achieve that is by maintaining discipline and continuing with his savings and investments even in the bad market conditions.
Kunal should actually be saving more in these times of market uncertainty. His corpus would have shrunk because of the fall in the value of his investments and he should therefore save more to make up for the erosion in value. If he does that, when the market cycle turns, as it will, he will have a larger corpus that will benefit from the growth.
On the other hand, if he stops his investments now or even withdraws with the intention of investing when the markets improve, his benefit will depend upon his ability to judge exactly when the market will start going up.
Moreover, he will have to bring in a large sum of money to make-up for the period when he did not save. This is likely to be difficult and his benefit when the markets rise will be limited.
Kunal should build on his strengths at this stage. Since he has been in the habit of saving regularly, he should continue with that and even increase it to protect his financial situation in the downturn. As far as his investments go, if the falling values in equity make him uncomfortable, he can split his investments between equity and fixed income investments. The plan should be to systematically shift into equity when the markets begin to stabilise.
Kunal’s focus should be on diversifying his portfolio and to invest in products where the costs and charges are low. Paying a high fee or cost, especially in a falling market will be detrimental to his portfolio’s returns over the long term. Products such as ETFs, index funds and deposits fit the bill. Taking all these steps will keep his portfolio primed for the time when they begin to see growth again.
(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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