The stock market has been experiencing a slump over the past few months, with key indices reflecting a downward trend. Since September 2024, both the Nifty500 and Nifty50 have registered declines. The Sensex recently took a hit, plummeting by 1,000 points as weak global signals, especially new tariff threats from the US, shook investor confidence.

As of March 11, the Sensex was down 12.85 points or 0.02 percent at 74,102.32, while the Nifty, on the other hand, showed some resilience, gaining 37.60 points or 0.17 percent to reach 22,497.90.

Many new investors have been complaining about their portfolios being in the red for over a year. However, financial experts generally advise ignoring short-term trends and focusing on long-term financial goals. If you find yourself struggling with the current market downturn, here are five key lessons to remember:

1. Stay Calm

Market downturns are an inevitable part of investing, and staying calm is crucial. Successful investors understand that the stock market is a long game. A single good year in the market can turn around an underperforming portfolio.

All equity mutual funds experience fluctuations, especially in the initial years. However, historical data suggests that negative returns drastically reduce over a holding period of 4-5 years. If your investment horizon is longer say, 7-10 years, you should not be overly concerned by short-term market movements. Avoid reacting impulsively to market news, as emotions often lead to poor financial decisions.

2. Refrain From Redeeming In Panic

One of the most common mistakes investors make is redeeming their investments the moment markets take a hit. While this instinct is understandable, it can lead to unnecessary losses.

Most equity mutual funds impose an exit load of 1 per cent if redeemed within a year of investment. Additionally, if your long-term capital gains (LTCG) exceed Rs 1 lakh in a financial year, you may be liable to pay tax on the gains.

3. Take Corrective Action If Needed

Some investors enter equity markets lured by high returns but later find they are uncomfortable with the associated risks. They need to remember that equity schemes can deliver returns of up to 30 per cent in good years, but they can also decline by 15 per cent or more during downturns. If you feel that your investments do not align with your risk tolerance, it may be time to rebalance your portfolio. However, make these decisions based on sound financial reasoning rather than short-term market fluctuations.

4. Diversify Your Portfolio

Diversification is one of the best strategies to manage risk and reduce losses. If your portfolio is heavily invested in equities, consider adding liquid funds or debt funds to balance it out.

Even within equity mutual funds, ensure you have a mix of small-cap, mid-cap, and large-cap funds. Spreading investments across different asset classes, such as gold and real estate, can also provide a hedge against market downturns.

5. Compare Performance With Other Funds

If you feel your mutual fund is underperforming, it is essential to compare it with similar funds in the same category before making any decisions.

Look at the funds with the highest ratings within your chosen category and assess how your fund stacks up. If your fund consistently lags behind its peers over multiple market cycles, you may want to consider switching to a better-performing option.

The Bigger Picture

Investing is a long-term game and should be treated as such. While market downturns can be uncomfortable, history shows that markets have endured and bounced back time and again. Stay calm, invest with a clear vision, stay informed, and most importantly, invest consistently.