Why are markets declining? What would happen to my money? You may have faced such questions from clients due to the ongoing turmoil in the market. To prepare you for answering such questions, we spoke to a few distributors to understand how they answer these frequently asked questions of clients.
Why is my portfolio in red despite investing for the last 5 years?
Mumbai MFD Sadashiv Arvind Phene believes that clients need assurance in times like this. “They need to be told that their investment is safe and they are facing just a notional loss. To give them confidence, I show them how our market has reacted to such events in the past. In addition, I tell them that since Indian economy depends largely on domestic production, the impact of covid-19 will be limited once things stabilize. Unlike other countries, India stands a better chance for swift recovery. This way, I advise them to stay put and in fact, put more money if possible to create wealth,” Phene says.
How can I achieve my financial goal due next year in such a scenario?
The best way to answer this question is to be honest to clients, says Mumbai MFD Paresh Shah. “Financial goals which are due in the near term have been affected. In such a situation, it is better to tell clients to redeem their investment from emergency corpus, fixed income funds and gold ETFs to achieve goals,” says Shah.
Should I redeem my mutual funds and exit completely?
Mumbai distributor Ranjan Panigrahi says that many investors are now scared and want to exit completely from mutual funds. He says, “I have been telling them to wait for at least a year. However, investors who cannot wait for a year, I have been telling them to exit their investments and reinvest in fixed income funds for couple of years to recover loss.”
Meanwhile, Phene and Shah have been arranging concalls of such clients with fund managers to assuage their concerns.
I am having a financial constraint, how can I stop SIPs?
Many clients want to discontinue their SIPs due to financial constraints during lockdown. Shah says “It is difficult for these clients to continue their SIPs due to loss of pay and job. I respect their decision and ask them to discontinue SIPs for three months. I think things will stabilize in less than three months,” says Shah.
Currently, many AMCs have introduced a new feature on their website through which investors can stop/pause their SIPs through a single click. Also, AMFI has requested AMCs who have not provided the facility to enable this on priority. In addition, a few fund houses have provided an alternative option such as email to stop SIPs
However, it is advisable to stop SIPs at least 10 days prior to the SIP date.
Should I take advantage of the moratorium?
Phene does not recommend his clients to opt for moratorium scheme introduced by RBI. He says, “Moratorium is just a temporary relief from RBI. Under this facility, if an investor defaults on his loan EMI or credit card dues, his credit score remains intact. However, banks and finance companies can charge interest rates on the payment delayed due to moratorium scheme. Hence, I ask my clients not to stop EMIs; instead, they should discontinue SIPs to repay loans.”
Should I put money in debt funds for short term contingency?
Pune MFD Bharat Phatak of Wealth Managers feels that the current downfall in the economy has affected debt funds too. “In the past few days, many clients have shown interest in debt funds to meet short term expenses or contingency. However, many short term funds have been affected due to current market turmoil. I have been telling my clients to keep their emergency corpus in cash or savings bank accounts for a while.”
How long will this volatility last?
This is perhaps the toughest question asked by clients. In a country like India where majority of the population prefers investing in bank deposits and other safe instruments, dealing with a volatile product like mutual fund can be a tough task.
Phatak tells his clients that volatility is inherent part of equity investments. He, however, assuage their concerns by showing his clients the past returns of equity funds and how these funds can outperform other asset classes over a long term despite volatility.
Should I increase my equity exposure through lump sum?
Considering the heightened volatility in the market, many advisors have been advising their clients to invest their money in a staggered way. Hyderabad MFD, Arjun Sarkar of Life Ventures says, “No one knows if the market will go up from here. It can do down further. Hence, it is better to take SIP route to invest in equity markets.”
