Sensex, Nifty crash: Should you buy, sell or hold your investments

Tuesday turned terrifying for the bourses with the Sensex tanking over 1,000 points after a major crash in US stocks in overnight trade. Within seconds, investors lost more than Rs 5 lakh crore of their money.

Crashes of this magnitude can spook even the most hardened of investors, and it is during such times that retail investors often end up taking knee-jerk calls leading to disastrous consequences. The call lines to all financial planners were jammed this morning. Delhi-based financial planner, Surya Bhatia, says that he has been getting queries from panicked investors. “Most people are regretting the fact that they did not book profits before January 31 (a day before the Budget),” says Bhatia.

This brings us to the most important question of the day: What should retail investors do now?
Hold your horses
Don’t panic. One should invest in equities with a long-term time horizon – one-year and anything shorter is the wrong way to go about it. “Existing investors should hold on to their asset allocations, not panic and sell-off. Even after today’s crash, markets are down to where they were in December. Even if you had put money in the equity a year, you would have made good money,” explains Bhatia.

In December, the Sensex was trading in the range of 34, 137 and 32, 565. Right now, the Sensex is at 33, 752. On February 6, 2017, it was at 28, 439 - a gain of almost 19 percent.

Anil Rego, CEO & Founder Right Horizons, a financial planning firm, too, echoes Bhatia’s sentiment – don’t be in a hurry to sell, invest in equity with an investment horizon of at least 3-5 years. “One year is too short a time period for equity. Even if this downward phase does last for a few months, don’t change your asset allocation. Be disciplined with your investments and add to your investments as and when you have surplus fund,” says Rego.

I am a new investor, will I be okay?
Indian retails investors buy when the markets are high and sell when they tank – this is way the cookie crumbles here. So, if you are looking at equity as an investment option, you can look at investing in a staggered manner using systematic investment plans (SIPs). “Large-cap funds are a safe option, so are dynamic asset allocation funds. Invest through the SIP route with at least a 3-5 year horizon,” says Rego.

For small investors, the mutual fund route is the best way to invest in stocks. They should not let volatility come in the way of their long-term investment plans. If anything, a crash should be seen as an opportunity to buy more units at lower prices.

But don't let this greed for more extend to stocks. Some stocks might have become penny stocks after the crash, but don't be tempted to buy. It doesn't take long for a stock to touch a two-year low or even a five-year low.