Should I Invest In Mutual Funds When Market Is Down?

As markets are falling due to coronavirus pandemic, the current market levels are sharply down than the earlier normal levels of the market. Many of you have a question that, should I invest in mutual funds when market is down?

Understanding Mutual Funds

Many retail investors only know that mutual funds are only linked with stock markets, that is not true.

Mutual Funds are broadly in two categories, Equity Funds & Debt Funds.

Equity Mutual Funds

Equity means equal ownership in a company, so if you buy equity shares you buy equal ownership in a company.

When you buy equity, you are entitled to the profits and appreciation that the company earns over a period of time.

If you are investing in equity mutual funds your money is further invested in shares or stock market to generate capital appreciation for you.

Debt Mutual Funds

Debt means loans, when you buy debentures of a company you loan your money to the company in return of interest for a period of time.

So, if you are investing in debt mutual funds your money is further invested to buy debentures, bonds, etc of companies and governments. So these are not linked with stock market returns.

Should I Invest In Mutual Funds When Market Is Down?

In Equity Mutual Funds, Obviously Yes!

You have to learn a few things related to market trends and what you should focus on when you are investing your hard-earned money to generate more money from your investments.

Focus In Bull Markets

Bull markets is a phase when markets are in upward trend and continuously rising valuations of the stock & its prices.

In bull markets, you should focus only on the risk part of your investment portfolio.

In bull markets, you should focus only on the risk part of your investment portfolio. Click To Tweet

When the valuations increase, markets rise you should consider decreasing your allocation in equity.

You must focus on your overall risk in your portfolio – Higher the valuations, decrease your allocation from equity.

This should be the only focus while you are investing in the equity markets.

Focus In Bear Markets

When the market is down in other words when the market keeps on falling then you should focus on opportunities in the bear market.

You should invest more in diversified equity funds or large-cap equity funds whenever the market is down.

The more you invest in mutual funds when the market is down the more returns you will generate as the market recovers over a period of time.

So, look for more opportunities in the bear market not in the bull market, and focus on risk in bull markets not when the market is down.

Conclusion

If you are investing in mutual funds and the market is down at the same time instead of being scared of the market falls or negative returns in your portfolio you must focus on investing more, look for opportunities in bear markets.

The one who invests more in mutual funds when the market is down will garner more when the market recovers.

When the market recovers and keeps on rising you should then decrease your allocation from equity mutual funds and focus on the overall risk of your portfolio viz a viz market valuations.

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