Market Crashes

We know this paragraph might make you think that we are kidding, but just think about it; don’t you feel that market crashes are like a cat’s mood swings? One moment, they are happy and ask for attention; the very next moment, they become grumpy and would scratch the hell out of you. But we all know that their crabby mood doesn’t last too long — all we have to do is give them time and wait for them to go back to their jolly mood. Market crashes are quite similar to this. Sometimes, the market may make you feel like you are on your way to becoming the next millionaire with your Rs 100 SIP—just kidding, though. And then, the next morning, all your dreams can be shattered when the market goes down.

So, what do you do in that situation? Wait for the market to rise again, right? Some of you may not agree with this; therefore, let’s dive deeper into how to deal with market crashes when investing in mutual funds.

Understanding Market Crashes

Think of a forest fire; does it happen overnight? No, right? Most days are serene, the trees grow at their own pace, amidst the rustling leaves, animals live their lives, and the dry leaves keep piling on the ground. Over time, the forest wilts, the deadwood lies everywhere, and a small spark changes everything; the fire runs deep in the forest. Although it destroys nature rapidly, over time, the forest regrows — denser, healthier, more diverse, and more fire-resistant — making it better than before.

Market crashes are often like that. A single trigger — geopolitical tension, bad news, economic fall, and inflated expectations — sparks terror and unforeseen events. The panic takes over, and investors instantly rush to sell their investments, causing stock prices to fall sharply.

Simply put, a market crash is a rapid and severe decline in stock prices across companies that occurs when investors panic due to an economic downturn, fear, or bad news. These crashes have the potential to wipe out your wealth instantly; however, the goal is to remain calm and invested, as markets recover over time, offering promising returns.

Common Mistakes Investors Make During the Market Crash

The market crash surely creates tension among investors, and most of them often make mistakes that they regret. We are elucidating some common mistakes that investors make during a market crash.

Panic Selling

Imagine investing for years, building a promising corpus, and selling it at its lowest price when the market crashes? Yes, sounds stupid, doesn’t it? Well, most investors make this mistake when they witness the market falling before their eyes; anxiety and panic kick in, and they eventually sell their assets. But staying invested in a situation like this is always ideal, as the market rebounds for patient investors.

Timing the Market

Can you predict tomorrow, or the next hour of your life? We’ll presume you did, now what if an emergency occurs, demanding you to change your decision? All your plans will go to waste, frustrating, isn’t it? It’s amusing how some investors try to time the market when it’s unpredictable. They predict exits and entries, which are mostly incorrect, leading to considerable losses.

Checking Portfolio Too Often

Some investors have the habit of checking their portfolio every other day, leading to anxiety, leaving them wondering about the market’s ups and downs, how it will turn out in the future, and many more things. This often leads to making wrong decisions. Therefore, checking your portfolio once or twice a month is enough.

Forgetting Balance

People switch to safe funds once they witness the market’s slight downfall. Some even fail to rebalance their portfolio, creating a portfolio that’s either too risky or too conservative for long-term financial goals.

Strategies to Deal with Market Crashes

We understand that deciding what to do when the market is crashing is complex, hard, and costs sleepless nights. The key to dealing with such a situation is to stay calm and make decisions wisely; however, that’s not possible for every investor, so we are mentioning some strategies to handle market crashes.

Stay Invested

Feeling anxious when the market crashes is obvious, but selling your assets because you think it won’t recover is naivety. The ideal thing to do is stay invested and buy more units at lower prices to relish its benefits when the market goes up.

Diversify Assets

Diversifying your assets means spreading them across different assets, such as stocks, bonds, and gold. You can allocate 60% of your funds in equity, 30% in debt, and 10% in gold to minimise risk and be on the safer side. If you are investing for the short term, then allocating more funds to debt or gold is ideal, for they offer stable returns. However, seeking professional advice is recommended.

Rebalance Portfolio

Checking your portfolio every other minute is foolish, but not checking it at all is injurious to your financial health. Annually reviewing your portfolio and adjusting your investments according to the market saves you from major losses. Note: Seek professional guidance before making any major decisions.

Build Cash Buffer

Ensure to stash liquid funds for 4-5 months that will save you during market crashes and help you avoid panic selling. Even if you are not investing, storing liquid funds for any emergency is mandatory.

Avoid Timing

We have mentioned it before, we will say it again, don’t try to time the market. Stop predicting the lows and deciding entries or exits based on that; it will only become another reason for your headache and balding.

Long-Term Perspective

You won’t bawl your eyes out if you are investing in mutual funds for the long term; why? Because you will be holding on to your investments even during the market crashes, relishing the compounding benefits and market recoveries. This approach is mainly suitable for equity holders, who are investing for 5-10 years; they are less likely to sell their assets during market downturns. With time, the investor leverages compounding, where returns generate further gains over time.

Also, check – Budget 2026 Decoded: Key Highlights, Tax Changes & Market Impact

On a Parting Note

You can effortlessly deal with market crashes if you are well-versed in your financial goals, have patience, and are determined to stay invested. All you have to do is diversify your assets, rebalance your portfolio, build a cash buffer, and focus on your time in the market, not timing the market.

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Disclaimer – This article is for educational purposes only and does not intend to substitute expert guidance. Mutual fund investments are subject to market risks. Please read the scheme-related document carefully before investing.