The COVID-19 pandemic has brought about a lot of questions in the minds of investors. With the way the market is going, many individuals seem to be torn between whether to invest, hold, or redeem their investments. If you’re one among them, here’s something that can help bring a bit of clarity.
Should you invest?
The answer to this question is very simple. Yes, you should continue investing in the stock market irrespective of the current market trend, especially if you’re investing in a mutual fund. Why, you ask? It is because of a phenomenon called rupee cost averaging.
For instance, when you invest in the stock market when the prices are falling, you can purchase more units since the prices tend to be low. And when you invest at a time when the prices are going up, you purchase fewer units. And when you continue doing this over the long-term, you get to reduce your overall cost of investment through rupee cost averaging.
And in the current scenario, the market seems to be doing quite well too, making it the perfect time to invest.
Should you hold?
The answer to this is not as straightforward as the previous question. If your stock investments are not performing according to your expectations, holding onto them may just be the right investment strategy to follow. One of the reasons for this is that the stock market has almost always managed to bounce back after a fall.
And any sort of an underperformance is likely to be temporary. On the other hand, if you choose to sell off your holdings during volatile or bearish phases, there’s the risk of missing out on the wealth creation process when the markets pick back up. This is precisely where many investors tend to lose out.
Should you redeem?
Again, the answer to this question is also subjective and complicated. Redemption of your investments should ideally only be done when you’re in urgent need of funds. Otherwise, it is best if you leave your investments alone.
Alternatively, you could also choose to redeem your investments if they have satisfied your financial goals and objectives. Or, if you’ve come to a point where your investments have made profits that you deem are good enough. That said, it is advisable to continue investing in the stock market even after redemption through schemes like Systematic Investment Plans.
The kind of strategy that you need to follow depends on various factors such as your investment objectives and risk appetite, among others. Therefore, before you choose an approach, ensure that it is in line with your investment objectives.