When equity mutual funds offer negative returns, here’s what you do

The domestic equity market has been volatile over for quite some time now, and there have been numerous reasons for this - trade wars, liquidity crisis, economic slowdown, global recession risk and the list goes on. Given the volatile movement in equities, portfolios of many mutual fund investors, especially those who ventured into the market recently, are in the red, reflecting negative returns.

But even in such an environment, we are witnessing a steady investing behaviour, as highlighted by monthly SIP inflows. Retail investors put Rs 8,324 crore into the mutual funds through in July 2019, clocking the highest monthly SIP inflows ever.

At the same time, a few investors have turned cautious, as they are not used to seeing their portfolios going into red.


Warren Buffet once said, “the stock market is a device for transferring money from the impatient to the patient.” Markets tend to reward those investors handsomely who show conviction and stay invested. Investors must realise this is not the first time markets are correcting. In fact, market corrections are crucial for healthy uptrends in the times ahead.

The equity market has seen much more hiccups in financial and economic markets, including but not limited to the Harshad Mehta scam, Satyam saga, Mumbai terror attacks, Kargil War and 2008 global recession, but the rebound has always been stronger.

No wonder, S&P BSE Sensex has generated around 16 per cent returns CAGR for investors since its inception 40 years back, absorbing all such financial shocks.

The need of the hour is to stay insulated from the panic in the market and continue to stay invested. If you decide to redeem your investment at currently prevailing lower valuations, you are giving away your potential returns to another investor.

The market is currently trading at relatively lower valuations compared with those seen some time back. While it is not a good feeling to see portfolio valuations trend south, investors should focus on grabbing this opportunity to increase their investment exposure at attractive valuations, instead of thinking about temporary loss in their portfolios.

Since similar investments will now help you get a more shares at lower prices, it will help average out the cost of investment and equip you with the potential of higher growth when the market rebounds.
Staying away from the market in volatile times can cause a permanent deferral of investing, as volatility comes naturally to equity investing. As such, it is always desirable to make friends with it, rather than fearing it.

Dynamic asset allocation funds can help you maintain an active asset allocation for your portfolio, suiting current valuations and market sentiment. Following the simple investing principle of “buy low, sell high”, regular profits can be booked on investments trading at higher valuations and where the money is invested in an asset class and security at relatively inexpensive valuations.

Even when you stay invested in mutual funds, valuation-based portfolio churning by fund managers can help generate better returns for investors. As such, staying dynamic with asset allocation through asset allocation funds can be a great idea to turn the volatility wave in your favour.

Opening a mutual fund SIP can be another way of eliminating emotional bias from your investing journey. Since investments continue to be made irrespective of the market direction, investors continue to move towards their financial goals effortlessly. While negative returns might not be a desirable feeling to have in your portfolio, the long-term outlook for the market continues to be positive. As such, it is just a matter of time before your portfolio turns from red into green.

These are the times when your confidence in the market gets tested. Don’t let short-term market movements deviate you from the route to achieve your financial goals.