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Why did your investments turn negative in the past 6 months?

Portfolio turned negative

Last few years had been great for the markets as Sensex and Nifty were unidirectional in just going up. So everyone wanted to start investing in equity. Why? Well, because equity is what is going up, everyone is investing and so I should too. Everyone wanted to start SIPs and turn into millionaires by their next birthday. The hysteria was unexplainable. But in such a situation, generally, because of the high demand and continuous flows coming into the market, stocks tend to get overvalued. Since everyone is hoping against hope, people are ready to pay prices they don’t understand.

However, like everything else in life, markets do reverse to their mean. And this means some volatility or correction happens with the slightest of triggers. Those triggers may have no immediate or long-term impact on the companies underlying the indices, but markets may react as if all hell has broken loose. The feeling is pretty much like how we feel when we are down with a 104-degree fever and we are sure we will not survive “just this time”. And this is when your equity funds portfolio might show a negative return.

Your portfolio will definitely show a negative return if you started your investing just a few months before the volatility started (In our case, those who started investing in 2017). This happens because all your investments happened at prices which were already high. In case of SIPs, each instalment was getting invested at a higher price. And because only a few such instalments got invested, even the tiniest of corrections will show you a negative portfolio.

So what should you do?

Well, this depends on what kind of an investor you are.  If you are someone who can smile through the fever and have an unfailing belief on “this too shall pass”, then you should simply stick around.

But if you are someone who frowns and frets as soon as your investment drops by a few notches, you probably are not ready for equity yet. Also, if you thought that equity will multiply your wealth in next 2 years just because it did so for the last 2 years, you may again want to reconsider your decision of investing in equity mutual funds. But there is a solution for such investors too. Read here to find out what.

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I don’t like negative returns on my investment. What should I do?

What to do for safe returns?

Investors are just humans and every human is a different personality. And hence, our appetite to be able to see our money go up and down might vary as well. And what we want to do with our money is a very personal decision. So it is perfectly okay if you are an investor who hates to witness the volatility that equities bring on the table. This means, that you prefer certainty in life more than the worry about whether your negative return will turn positive ever again. Basically, you are a debt investor.

Saying no to equities is fine, as long as you know the trade-offs.

  • Your returns will at best match inflation, debt instruments are unlikely to give you inflation-beating returns now and forever
  • Hence, to accumulate the amount of corpus that you may need for financial independence may necessitate you to earn more as your invested money can only work to protect your capital (in the best case scenario)
  • Debt Mutual Funds can also suffer losses in rare cases. This generally happens with funds which have high credit risk on their portfolio

But Debt Funds do come with advantages that are more in sync with your investment philosophy:

  • Returns are fairly consistent (The degree of volatility is much lower than equity)
  • Depending on the funds you select, you can have complete liquidity of capital. So you can withdraw whenever you want without any charges
  • Debt FMPs or Fixed Maturity Products which have around 3-year lock-in, provide slightly higher returns than other debt funds which do not have a lock-in. Add to that the benefit of low or negligible taxation due to indexation benefits.

At this juncture, you might be quite disappointed with the fact that there could be losses in rare situations and you still don’t get to escape volatility. You must be telling yourself a 100 times that the good old FDs are still the best solution. But hold on. Is your Fixed Deposit making you wealthier? Read here to find out.