Your Queries – Mutual Funds: Is it advisable to redeem money as returns are going down?

Since the lows of March 2020, equities have rallied sharply on the back of fiscal and monetary support, and optimism over global economic recovery amid vaccine roll-outs to mitigate the COVID-19 pandemic

I have completed five years of SIP. Should I now withdraw the entire amount of money as the markets have become very volatile?
—Amit Khanna
Equities are the most favoured asset class for wealth generation over the long term, with the potential to deliver superior inflation-adjusted returns compared to fixed-income. They should form an integral part of an investor’s portfolio subject to his/her risk appetite and time horizon. Equities are more volatile than most asset classes, and returns are not assured as is the case with fixed-rate instruments, with the possibility of generating a negative return particularly over short term periods (up to 3 to 5 years).

However, over longer time horizons, the probability of negative return diminishes. Investors should stick to their strategic asset-allocation (SAA) which in turn depends on their risk appetite (ability and willingness to take risk) and not try and time the markets. Higher the investment horizon and risk appetite, higher can be the allocation to equities. As your goal approaches, you should shift the allocation out of equities into fixed income to lower risk of future drawdowns.

Is it advisable to redeem my money as the returns are going down?
—Subrata Sarkar
Since the lows of March 2020, equities have rallied sharply on the back of fiscal and monetary support, and optimism over global economic recovery amid vaccine roll-outs to mitigate the COVID-19 pandemic. Over the past week, markets have faced resistance amid profit-booking at high valuations, and concerns around rising interest rates and a resurgence in Covid-19 restrictions locally and across the globe. Hence, the decline in your fund value.

Equities are more volatile than most asset classes with even possibility of a capital loss over the short-term. However, as the holding period increases, the risk of capital loss diminishes. You should continue to stay invested if you have a long investment horizon, and can even look to allocate further when such corrections take place as these present an opportunity to buy units at cheaper prices. Investors should stick to their strategic asset-allocation which in turn depends on their risk appetite (ability and willingness to take risk) and not try and time the markets.

The writer is director, Investment Advisory, Morningstar Investment Adviser (India). Send your queries to [email protected]