Needing money during a market downturn can be stressful, especially if a large portion of your portfolio is in equity. However, with proper planning and the right investment structure, you can significantly reduce this risk. Here’s how to think about it:
1. If You Have Invested in Debt Funds, You’re Largely Safe
Debt funds are generally more stable compared to equity investments. Their volatility is low, and short-term fluctuations are limited.
So, if a part of your portfolio is in debt funds, you can comfortably withdraw from them even during a market decline without worrying much about significant losses. This is why debt exposure is crucial for meeting near-term goals.
2. Equity Investments Require More Caution
You need to be concerned primarily if your funds are heavily invested in equity schemes. Equity markets can experience sharp declines, and withdrawing during such times may lead to losses.
But the good news is: you can manage this risk well in advance so that you’re not forced to redeem during a downturn in your goal year.
3. Plan Ahead If Your Goal Is Many Years Away
Suppose you need funds after 15 years. In this case:
- Begin closer monitoring of your investments after Year 10.
- If markets are doing well and your returns have reached or exceeded your expected targets, start booking profits gradually.
- You can shift these profits into debt funds in tranches, reducing reliance on market performance in the exact goal year (Year 15).
This phased de-risking ensures that your final-year requirement is not exposed to sudden market volatility.
4. Ensure Proper Asset Allocation from the Start
It’s risky to invest your entire portfolio in equity funds—no matter how long your investment horizon is. A balanced portfolio should include:
- Equity funds for long-term growth
- Debt funds for safety and stability
- Hybrid or balanced funds for a mix of both
Proper asset allocation smoothens returns and minimizes the possibility of needing funds during a downturn when only equities are affected.
5. Continuous Monitoring and Guidance
Since I am associated with you, I will continuously monitor your investments and guide you on suitable strategies—whether it’s shifting to safer assets, booking profits, or rebalancing when required.
This constant oversight ensures that your portfolio remains aligned with your goals and risk tolerance at every stage.