Another 25% Market Crash? Here’s How to Protect Your Mutual Fund Investments

The Indian stock market has been on a roller coaster over the past few months, with many mutual fund investors feeling uneasy. So far, so far, the corrections we have seen on various indices (Nifty50, Midcap, Smallcap) range from 15% to 25%. The correction is a normal part of the market cycle, but the key issues are: Are mutual fund investments prepared, especially if there is an additional 25% crash, especially in the Midcap or Smallcap segment?

Previous stock market revisions

Over the past few months, equity mutual funds have faced greater volatility due to market modifications. We discussed it a few days ago 10 days ago Equity Mutual Funds that have lost 20% to 22% in the last six months Too much.

Below we have influenced mutual funds in different categories: how the major indexes have been revised.

• largecap fund (NIFTY50 tracking): It’s down by about 15% from the recent peak.
• Midcap Fund (Tracking Nifty Midcap 150):A deeper corrections were seen from about 20% to 25%.
• Smallcap Fund (Tracking Nifty Smallcap 250): The most intense blows, sometimes falls above 25%.

These revisions are driven by multiple factors, including global interest rate hikes, geopolitical tensions, expensive valuations and concerns over tighter liquidity. But the big question remains: what happens if Midcap and Small-Cap mutual funds witness an additional 25% drop?

What happens if there is another 25% crash?

Midcap and Small-Cap mutual funds are known for their high volatility. They tend to outperform in bull markets, but also suffer sharp falls during recessions. If these segments face an additional 25% revision:

• The direct negative impact on the Largecup mutual fund is between 20% and 30%, and an additional 25% crash.
• MidCap and SmallCap mutual fund investors can test patience as NAVs declined sharply beyond this.
• SIP investors may be discouraged as the value of their portfolios temporarily shrinks.
• Fund managers may ease the balance of their portfolio and limit negative risks, but redemption pressures can strengthen falls.
• Sentiment-driven sales can take on valuations at a historically low level and create opportunities for long-term investors.

Are mutual fund investors ready for such a shock?

A sharp fix can shake up the confidence of investors. Here’s how to evaluate your preparation:

• Portfolio allocation: If the majority of your investment is in the midcap Small Cap FundIt’s time to reassess your risk exposure.
• Emergency Funds: Make sure you have sufficient liquidity to avoid redemption of mutual fund units during the recession.
• Psychological preparation: Can you withstand short-term losses without impulsive redemption? If not, it may be wise to readjust your portfolio.

How can you reduce such risks?

Instead of panic, there are several strategies to navigate these market conditions.

1. Continue to invest in SIP: A market slump provides an opportunity to accumulate more mutual fund units at lower prices. This helps in creating long-term wealth. Continue investing in mutual funds through SIP.
2. Diversification is important: Don’t put all your money into Midcap and Smallcap funds. I’ll keep it Balanced allocation across hybrid, largecapand the Debt Fund.
3. Choose to buy dips. If you have surplus funds, consider temporary investments in the shifting tranche during market corrections.
4. Choose a quality mutual fund: Invest in funds with strong track record, experienced fund managers and consistent investment strategies. For example, there is an end 20 equity mutual funds that have provided positive returns each year over the past decade. You can start with this list.
5. Avoid redemption of panic: Many investors leave at the wrong time. If you don’t need money right away, keeping your investment is your best strategy.
6. Maintain a long-term perspective: The market has historically bounced back from major revisions. Patience is the key to creating wealth in mutual funds.

Final thoughts

The possibility of further revisions of 25% in Midcap and Smallcap mutual funds may be scary, but it could also be a great opportunity for disciplined investors. Instead of being emotionally responsive, having a structured plan (optional, gradual investment, focus on quality) can help you navigate the storm.

Are you ready for another crash? Or would you use it as a purchase opportunity? Share your thoughts in the comments below!

Suresh KP is a veteran financial expert with over 20 years of experience. He is a NISM certified investment advisor and research analyst. For more information about his expertise and certification, please visit Suresh KP

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