The majority of mutual fund investors are currently seeing low returns and recent entrants might be seeing negative returns on their investments. Most of the investments are displaying a loss if they were made during the last 12 months. This might dent the confidence of new investors.
However, this is a great opportunity for you to take action and attempt to turn negative returns into profits if returns have gone negative, or are displaying losses. Let’s look at how to achieve this if you wish to.
What financial advisors are advising?
When the stock market plunges, so do the returns of equities-based mutual fund schemes. Investors must first realize that in this situation investment in mutual funds is correlated to the ups and downs of the stock market. So, it continues to rise or fall little. Therefore, it is advisable to invest for the long term. A long time is defined here as at least three years. The long-term investments give you net profit results after going through a roller coaster ride. The market is going through a downfall due to multiple reasons across the world. The market, however, will bounce back after normalcy.
What to do in the current scenario?
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If an investment in a mutual fund scheme is now showing a loss, compare it first to the benchmark return. In other words, if the mutual fund scheme you invest in is a large-cap fund, then you should look at the returns of a large-cap benchmark. This means that you can view the benchmark return for a year if your mutual fund plan has been invested for a year. If your mutual fund scheme’s returns are higher than the benchmark returns, everything is well. However, leaving such a mutual fund scheme may be the best course of action if its return is lower than that of the benchmark return.
How to minimize losses and earn profit?
Averaging:
It is time to average your funds if the returns on your mutual fund schemes are currently looking a little low. Averaging is making incremental investments in your mutual fund scheme during this period of the downturn so that, whenever the stock market recovers, your mutual fund scheme will quickly begin to generate income.
Do top-up:
It is a good idea to continue your SIP now if you invest in mutual funds through it. SIP only does the best averaging when the stock market is declining, for this reason. However, if you are a little bit of a savvy investor, you may also add a little bit to mutual fund schemes with SIP. In other words, in addition to SIP, you can make a top-up in your mutual fund plan. Your averaging will somewhat improve if you do this. Later, it will reap a higher return.
