Every individual has a unique set of goals and he invests as per his goal requirement. Generally Financial Planners recommends Equity; a volatile product for your long term goals. For your short term goals they recommend fixed-income instruments, debt funds etc.
There is no problem with the short-term investment avenues as they give guaranteed return on a pre-fixed date. But equity won”t be like this. They tend to collapse before reaching your goal date. What to do then? Isn’t the right way to invest in equity then? No, Not all!
What to do if the market collapses before your goal date–
Generally equity is recommended for the long-term and the investor has to stayed invested atleast 5-8 Years. If you didn’t redeem your investments till the end of the tenure, your corpus may increase/decrease depending on the market conditions. For example- if the investor started investing in equity mutual funds with a view to withdraw in 2020, his invested corpus will get eroded due to the market crash in 2020 March. Even he do sip in mutual funds, his investment corpus is negative! Do you say equity as a wealth destroyer then? No, Not all! To protect their investments from the market crash, the investor has to follow the below steps-
- First fix the goal amount and the investment tenure
- Review your portfolio at least 2-3 years before reaching your goal amount
- If it is in short of your goal amount and you can hold for some more time, you can continue your sip’s
- If you are nearing your goal amount and it would be mandatory required for fulfilling your needs, do SWP(Systematic Withdrawal Plan) or STP(Systematic Transfer Plan)
- SWP would be done if you need the corpus monthly where SWP averages out your cost monthly
- STP would be done to transfer the equity corpus to the safer debt instruments.
So before reaching your goal, do SWP or STP to average your market cost. Both SWP and STP minimses the risk and safeguard your capital.
If you are expecting a market crash in the near future, do STP to debt funds which protects your capital. Choose SWP or STP based on your requirements and act accordingly! But do remember this has to be done 2-3 years ahead of your goal period