The markets have provided stupendous returns since the low in March 2020. In the last 18 months, BSE Sensex has moved from 25,981 to reach 60,000 in September. A straight 134% gain. However, owing to the recent fall, many investors are regretting not redeeming their investment during the market high.
But, is it really worth regretting?
Riding on the market high many investors have earned great returns by investing in the lows while redeeming during the highs. But, they would have earned much higher returns if they had stuck with their investments further.
Here is how:
Two of the biggest gainers in this high were Quant Small Cap fund and Kotak Small Cap fund.
When the Sensex was at 25,981on 27 March 2020, the NAVs for Quant Small Cap and Kotak Small Cap fund were ₹30.15, ₹50.07 respectively.
Now as the Sensex touched 40,509 on 9 October 2020, the NAV for Quant Small Cap was ₹62.05 and for Kotak Small Cap fund, it was ₹88.23. So for an investment of ₹1 lakh on each of the funds on 27 March 2020, the investor would have earned a total corpus of ₹2.05 lakh and ₹1.76 lakh.
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Similarly, when Sensex reached 50,731 on 5 February 2021, Quant Small Cap’s NAV was at ₹76.35 and Kotak Small Cap fund was at ₹119.82. The same investments grew to become ₹2.53 lakh and ₹2.39 lakh respectively.
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And, on 24 September 2021, as the Sensex reached 60,048, the corpus of each of the investment grew to ₹4.38 lakh and ₹3.55 lakh respectively with Quant Small Cap’s NAV reaching ₹132.26 and Kotak Small Cap fund’s NAV touching ₹177.94.
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Here is how much you could lose:
- So if the investor had redeemed the investments when Sensex reached 40,000, he would have made a loss of ₹2.33 lakh on Quant Small Cap’s investment and ₹1.79 lakh on Kotak Small Cap fund’s investment (this is in comparison to the time Sensex reaches 60,048 in September 2021).
- Similarly, the investor would have made a loss of ₹1.85 lakh and ₹1.16 lakh respectively, if he/she had redeemed the investment when Sensex reached 50K (as compared to the corpus on September 2021)
“Markets are rarely high when you visualise them today, in comparison with the future, say 10 years later. We invest for the future levels of markets. The nature of the market (especially in a developing country like India) is to rise with few temporary falls in between,” said Kalpen Parekh, MD & CEO at DSP Mutual Fund.
Adding to this, Arijit Sen, SEBI Registered Investment Adviser and co-founder of merrymind.in, said, when an investor is thinking of redeeming the investments, he should ask himself a few questions – why does he need to sell it? And then, after selling it, what does he want to do with it? Where does he want to park the money? etc.
Redeeming randomly based on market movements , he is making the active investment passive. Also, in turn, he is missing the impact of compounding on the investments in the long run, he added.
Times when you should redeem your investments:
When you are nearing your investment goals: Whenever you’re investing, you should have a proper purpose. And based on that purpose, you will automatically figure out how much money you need when you need it.
For example, if your goal is for 15 years, then you should think of changing your investment strategy from the 10th or 11th year. And, you should not be bothered about short term market corrections.
When the financial goal changes: It’s not the right approach to chase returns; investment should be made as per one’s financial goal. When your goals change, it becomes necessary to change your investment strategy and hence, there might be some requirement of redeeming investments.
When the markets tend to move upwards people forget the importance of asset allocation. And when there’s no asset allocation, investors try their luck in making such random investments, Sen concluded by adding, but the same can turn deadly when the market starts taking a turn in the other direction.
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