Is it wise to start equity investing during a market downturn?

"I want to start investing in equity, but I'm hesitant because the market has been falling for the past few weeks. What should I do?", one of our readers asked recently.

It's only natural. After all, the thought of putting your money into equity when markets seem unpredictable can feel intimidating. But allow history to assuage your fears.

Pull up any record and you will find the Sensex has always roared back to life even after major drawdowns. The current market volatility, then, is barely a match.

Key takeaways:

• Even during extreme market declines (61 per cent in 2009 for instance), markets eventually recovered, rewarding investors with substantial five-year returns.
  
• The recovery period varied from a few months to a few years, but the eventual trajectory was always upward.
  
• Staying invested during these periods required patience but it gradually paid off with double-digit returns.

Two more reasons why falling markets should not deter you from investing are:

1. Lower prices: When markets decline, stocks—and by extension mutual funds —become cheaper. Starting your investments during such phases allows you to accumulate more units for the same investment, setting the stage for higher returns when the market recovers.

2. Compounding: The longer you stay invested, the more you benefit from compounding . And starting early—even during a market dip—ensures you capture future growth. It's a simple principle: time in the market beats timing the market.

How to invest smartly during volatile times

If you're still hesitant, follow this simple guide:

1. Start small, but start now
The right time to invest is now. Begin with a small amount, even if it's just Rs 100, and build confidence as you go.

2. Invest systematically
A Systematic Investment Plan (SIP) is the easiest way to navigate market volatility. It spreads your investments across market cycles, ensuring you buy more units when prices are low and fewer units when prices are high, effectively averaging your cost.

3. Think long-term
Don't expect quick gains from equity investing. The rewards unfold over decades, not a few years. Focus on your financial goals and let compounding do the heavy lifting over time.

4. Stay calm during downturns
Avoid the trap of reacting emotionally to market dips. Selling during a decline locks in losses, whereas staying invested allows you to benefit from the eventual recovery.

Feeling hesitant to begin investing during a falling market is natural. But history proves that staying disciplined during such times rewards the believers handsomely. So, don't be a sceptic. Start today, stay consistent, and let the market's resilience work for you.

Also read: How to sleep easy during a volatile market

This article was originally published on December 31, 2024.