Don’t Sell your Equity Investments in Panic

Should you get rid of your equity investments or shift money to some other safe haven? Madhu T has some suggestions

    To say the investors are worried is an understatement. In fact, they are really worried sick. According to financial advisors, a sizeable number of investors are on the verge of hitting the panic button. 

Market experts are faced with a deluge of queries from their harried clients these days: Is penny pinching the only way to tackle the current problems? Can I stop my SIP now and resume it later when my expenses come down and the situation in the market improves? Can I get rid of my equity investments and shift the money to some safe place? 

"Yes, to some extent it is true that people are really worried. Though not in large numbers, they are really nervous about the whole situation – the market hasn't delivered in the last three to four years; the macro economic scenario is depressing and they don't see the government taking any concrete step to salvage the situation," says D Sundararajan, investment consultant, Trendy Investment, a wealth management firm. 

"This is quite a testing time for many investors. They really don't have any confidence left because of the economic climate. They also have to deal with higher cost of living and higher EMIs," says a mutual fund official who doesn't want to be named. "However, I would like to tell investors not to take hasty decisions. They should really think it through or discuss it with their financial advisor before taking any major decision." 

DO THINGS NATURALLY 

Many experts believe that some investors may be overreacting to the current scenario. "The trouble with most people is that they believe they are witnessing the worst scenario in history. If you ask some seasoned investors or even your parents, they would tell you they have seen worse," says a wealth manager, who doesn't want to go on record. "My advice is to do things which you would naturally in an adverse situation. For example, your expenses are going up. Instead of finding ways to fund the extra expenses, you should always try to find ways to reduce it. Cutting down on your investments to fund your extra expenses would be a huge mistake," he adds. 

Hemant Rustagi, CEO, Wiseinvest, says the market always surprises, and this time will not be an exception. "Mostly, the market springs a surprise when everyone is almost on the verge of giving up. I am telling people the same thing that they shouldn't write it off in a haste," he says. 

TEXT BOOK RULES DON'T WORK 

Investment experts confess that the golden rules from text books, like — have an asset allocation; stick to it all the time; get on with your plan, irrespective of the market and so on — are not having the desired impact on the clients this time. "It is becoming more and more difficult to convince them. We try to counsel them, but if they are really worried, we help them redraw their asset allocation to equity," says Sundararajan. "It is done on a case to case basis. If the investor understands the current scenario and is not unduly worried about the equity investments, we ask him to continue with his plan. If the investors are really bothered and don't want to take any chance at all, we allow them to reduce their equity exposure. For example, we have reduced the equity exposure of a number of people nearing retirement, or in the age group of 50-60 years, substantially by 20-25%. We have shifted the money to short-duration funds as they didn't want to take the interest rate risk," says Sundarajan. 

Many experts like Sundararajan are asking their clients to be cautious about their new investments in equity as there is no clarity on interest rates, inflation and government's response to challenges faced by the economy. 

DON'T PROVE THEM RIGHT 

Kartik Jhaveri, director of wealth management firm Transcend Consulting, says his only request to nervous investors is: "please don't prove your critics right". "If they get out now, they will prove to the world that retail investors always lose money in the market. This is because most of them get out when the market is not doing good, and miss the opportunity to make it big when the market recovers. Or they will get into the market when the rally is almost over and stay in invested for a couple of years and start cribbing that they didn't make any money," he says. 

"Prove the world wrong this time. Don't stop your investments and be there to witness the birth and end of the rally," he adds. 

Experts like him want investors to remember that their investing programme is done with a certain purpose in mind, and all they have to be sure about is that they are using the "correct way to create wealth". 

"Understand that there will be different business cycles every five or seven years, and there will be rallies as well as big falls. If you act in haste, you will be disappointed," cautions Jhaveri. 

madhu.tnair@timesgroup.com