Thinking of redeeming investments during market highs? This is how much you may lose
Premium- Investors who took the opportunity to invest during the low has gained tremendous returns for redeeming the same when the market was high
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Since the fall in March 2020, Indian markets have shown a stupendous growth over the last 18 months. From the low of 25,981 on 27 March 2020, Sensex has reached an all-time high of 60,000 last month. A straight 134% gains in just one-and-a-half-years. Riding high on this, mutual funds have also given high return in the same time span.
Investors who took the opportunity to invest during the low has gained tremendous returns for redeeming the same when the markets were high. However, it is to note here, if they would have kept the investment intact, the gains would have been even higher.
Let's understand this with a few example.
Quant Small Cap fund and Kotak Small Cap fund were the biggest gainers during this market rally. Now on 27 March 2020, when the Sensex was at 25,981, the NAV for Quant Small Cap and Kotak Small Cap fund were ₹30.15, ₹50.07 respectively.
Now on 9 October 2020, when Sensex reached 40,509, the NAV for Quant Small Cap was ₹62.05 , and the NAV for Kotak Small Cap fund was ₹88.23. So if an investor would have invested ₹1 lakh on each fund on 27 March 2020, the corpus would grow to become ₹2.05 lakh and ₹1.76 lakh.
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Similarly, on 5 February 2021, the Sensex reached 50,731, and the NAV of Quant Small Cap was ₹76.35, and for Kotak Small Cap fund, the NAV was ₹119.82. So the investments would grow to become ₹2.53 lakh and ₹2.39 lakh respectively.
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And, on 24 September, as the Sensex reached 60,048, the Quant Small Cap's NAV was ₹132.26, and Kotak Small Cap fund's NAV was ₹177.94. The corpus for both the investments would grow to become ₹4.38 lakh and ₹3.55.
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Hence that way, if the investor had redeemed the Quant Small Cap investment on 9 October 2020 when the Sensex reached 40K instead of 24 September 2021, he would have lost ₹2.33 lakh and similarly, for his investment in Kotak Small Cap fund, he would have lost ₹1.79 lakh.
So, instead of trying to time the markets, and redeem your investments during market highs, investors should sell units when their is need for money or when the investor is nearing his financial goal.
