Top 14 FAQ about Market Crash with their Answers

Hey there investors! We know the times are tough and the situation tense. It is natural to be apprehensive about the state of your investments and confused about your finances.

But we won’t let you struggle alone. We have compiled a list of 14 questions, answered by Groww experts that will help you arrive at the right investment decisions! Let us begin.

Top 14 FAQ

Q1) Why is the market down?

Markets work because people buy or sell stocks. Sometimes, the mood of the market is very optimistic and people are ready to pay higher prices, other times it is pessimistic. Currently, it is pessimistic and it could be because of a number of reasons but the biggest factor seems to be the fear of a downward trend in the economy because of Covid-19. 

Q2) If the market is down due to Coronavirus, will it start growing once Coronavirus is cleared?

The market is probably down because there is a fear that Coronavirus will impact the economy in the coming months. A lot of businesses might be negatively impacted because of lockdowns and social distancing.

For example, the travel industry has already seen a huge impact. Economic activity usually gets better after such times as new demand for goods and services picks up. 

Q3) Is it a good time to invest?

Many people invest when markets are down so that they get a good price for their investments. The reality is, that trying to time the market almost never works. Nobody knows if the market will go down or up in the near future.

If you are investing for the long term, there is a much simpler strategy that works. Investing through market ups and downs without trying to time the markets has proven very useful. This is the advantage of SIP.

Q4) Is it good to invest in government securities right now?

It is very difficult to give advice for specific securities. What is more important is your asset allocation. What it means is that you are diversified across various asset classes like equity, debt, and gold according to your risk profile.

So, for example, if your risk profile is low risk and exposure to debt is very low – it makes sense to invest in debt to have a good allocation. 

Q5) Is it a good time to invest in lump sum?

We keep emphasizing that timing the market is extremely difficult. There is no certainty of market direction. So we always recommend SIPs.

And if you are doing lumpsum in equities invest the amount that you do not need in the coming years. Invest if you are able to see paper losses in your investments in the short term. Investing in liquid funds is less risky. 

Q6) Which schemes and funds are the best in the current situation?

Current situation or different situation: The answer remains the same. Focus on your asset allocation. The best scheme for me would be different from the best scheme for you. It depends a lot on the risk profile and the duration you want to invest in. You should aim to have a diversified portfolio which includes investments in all kinds of assets.

Q7) Since the market is going down, should I invest in mutual funds or shares?

These are two different products. Mutual funds are of different types – debt, equity, etc. Here we are assuming you are talking about equity mutual funds. Equity mutual funds invest in a collection of stocks and are managed by a professional fund manager. They diversify your holding across multiple stocks. And hence less risky than directly investing in individual stocks. 

If you think you can pick better stocks than a professional fund manager and can diversify according to your risk, go for stocks. But remember, most retail investors can not beat market average returns. A lot of investors invest in both. 

Q8) What things should I consider while investing?

The most important things (not in order of priority) that you should first be sure of are –

• What is your time horizon?

If you are investing for a shorter duration, avoid riskier investments. If your window of investment is long, you can consider investing in riskier assets.  

You can read the blog – How to choose mutual funds in India to understand better. 

• What is the amount of risk you are ready to take?

Even for the same duration of investing, the level of risk varies from investment to investment. Spend some time understanding the risk levels associated with different categories of funds. Invest only in funds that you feel comfortable with. Avoid investing in funds by simply looking at the past returns. 

Do you understand the fund or stock you are investing in?

When you’re buying an expensive phone, you spend a lot of time understanding the ins and outs of it. Likewise, even when investing, thoroughly research what you’re spending your money on. Understand what factors affect its performance, how it has fared in the past, etc. 

Q9) Should I continue/stop my SIP for the time being?

Continue your SIP.

That is probably the best strategy for most investors. 

While running SIPs through a down market might seem like a bad idea, there is no way of knowing when the market has bottomed and will start climbing. By the time people realize the market is climbing up, it is too late to make high gains from investing in it. 

In repeated studies, it has been observed that timing doesn’t work. What matters, is the time in the market.  

Q10) Should I redeem my funds since the markets are down?

You should redeem your funds when you need money. Or the reasons you invested for, changed. Redeeming money just because markets are down means you are buying at a high price and selling low. And you are converting your paper losses to real losses. As we keep saying it is extremely difficult to time the markets. Invest in equity funds for the long term only.

Q11) When the market is crashing, which category of mutual funds should we invest a lump sum amount in?

One should invest according to your goals and asset allocation.

For example, if you are investing for the next 10-20 years, equity funds are good. Check this article for more details – How to Choose Mutual Funds in India.

However, we also recommend not investing large amounts in a lump sum.

Q12) If my investment reduces to Rs.0 or negative, what do I do?

It is unlikely that your investments will go to zero (if the world falls apart)

Let’s talk about a scenario where your investments go down 50%. You will still hold the same number of units or shares – and if and when the markets go up, your investments will also go up.

It is very important to remain invested through bad times. Unless you need money for urgent needs or if the reason you invested changed.

Q13) Since the market is down, the NAVs of all funds are going down. But, the rate is different for every fund. Should I invest in funds whose NAV is dropped by a significant amount or vice versa?

NAV is almost irrelevant when you think about a mutual fund. It is better to look at the consistency of the past performance of a mutual fund than NAV. You can read more about mutual fund NAV here – 13 Things You Need To Know About Mutual Fund NAV

Q14) How long will it take for the market to become stable?

Wish we had a definite answer to this question. Nobody knows for certain when the markets will be stable. That being said, the best strategy is to remain invested, and continue SIP. Not to over-invest or take undue risk. And not to panic. Wealth eventually moves to people who can control greed and fear – and are patient.

To Sum Up,

These were some of the most commonly asked questions that we have tried to answer. While the times are rough, being patient and pragmatic about your investments is the only way to survive. Don’t take hasty decisions like redemption due to market volatility, rather weigh the situation judiciously before taking any step. Keep calm, keep the SIPs running, this too shall pass!

Happy Investing!

Disclaimer: The views expressed in this post are that of the author and not those of Groww.