Funds ka Funda: What Should Investors Do When Markets Are Down?

Vidhi Mehta: 
Hello everyone and welcome to Funds ka Funda. 

Today, we are addressing one question that is probably on every investor’s mind right now: 

What should I do next? 

Markets have tested investor patience over the last few months. Many investors who entered near the market peak are now seeing negative returns. Some are wondering whether they should continue their SIPs, some are thinking of adding more, while others are unsure whether this is the time to wait. 

To help us make sense of this, we have with us Vaibhav Shah. 

Hi Vaibhav, thank you for joining us. 

What Should Investors Do If They Invested Near the Market Peak?

Vidhi Mehta: 
Today’s episode is for the investor who may be feeling lost right now. 

Let’s say someone invested around September 2024, when Nifty was near 26,200. Almost 20 months later, that investor may be sitting on negative returns of around 12% to 15%. 

What makes it even more frustrating is that every rally seems to fizzle out. So, for an investor who has already shown patience but is still seeing losses, what would you say? 

Vaibhav Shah: 
Thank you, Vidhi, for having me. 

I understand that the last 12 to 20 months have been difficult for many investors. Markets had gone up sharply, and after that kind of move, some consolidation is natural. 

If we look at the market from a slightly longer perspective, the picture becomes clearer. Before the pandemic, the Sensex was around 42,000. During the Covid crash, it corrected sharply to around 28,000. At that point, there was fear everywhere. People were unsure about the future, businesses were disrupted, and investors were worried about what would happen next. 

But investors who stayed patient or invested during that phase saw the Sensex move from around 28,000 to nearly 84,000 over the next few years. That is a significant move. 

So, after such a sharp rally, markets do need time to consolidate and create a base before the next move. 

From a broader perspective, India is still in a strong position. Economic growth remains healthy, inflation is under control, and key macro indicators such as the current account and fiscal deficit are manageable. 

Of course, there are short-term concerns. Oil prices, currency pressure, geopolitical tensions and foreign investor flows can impact markets in the near term. But if an investor has a 3- to 5-year view, I believe patience can be rewarded. 

The important thing to remember is that nothing in life moves only in one direction. Businesses also go through ups and downs. If the underlying businesses are facing temporary challenges, the stock market will reflect that too, because the market is ultimately a collection of businesses. 

So, if you believe that businesses can recover over time, you need to bring the same belief to investing. 

If your investment horizon is only 6 months or 12 months, equity markets may not be the right place. But if you are investing with a 3- to 5-year view, then corrections and consolidations should be seen differently. 

One way to build that discipline is to invest with a goal. For example, if you are investing to buy a house, fund your child’s education, buy a car, or plan a foreign vacation, then you will be less affected by short-term noise. 

If you stop investing midway because markets are jittery, you may end up with only the tyres of the car, not the full car. 

Goal-based investing helps investors stay focused. 

Does This Market Correction Feel Different?

Vidhi Mehta: 
You mentioned the pandemic crash. We saw a major fall in 2020, and before that, the 2008 financial crisis. 

Now, in 2026, markets are down again. But for many investors, this time feels different. How true is that? 

Vaibhav Shah: 
Whether history repeats or not is something we only understand in hindsight. 

But one thing is clear: whenever markets correct, they create opportunities for future investors. You are able to buy the same investment story at a lower price. 

Think of it like shopping. If something you wanted to buy is suddenly available at a 10% or 20% discount, and you still believe in its value, why would you not consider buying it? 

Investing behaviour is similar. It is ultimately about managing human emotions. 

I do not think this time is completely different. During Covid, the fear was far bigger. People were worried about whether the world itself would function normally again. 

Today, India is still in a relatively safe zone. Yes, oil prices and currency pressure can impact markets, and global events are dynamic. A single tweet or headline can move sentiment in today’s world. 

But for an optimistic long-term investor, a correction can be a good time to invest. 

History has generally shown that investors who buy during corrections and remain patient tend to benefit. Those who panic and lose patience often end up making losses. 

So, even for someone who invested near the peak, patience is extremely important. 

Should Investors Continue SIPs During Market Corrections?

Vidhi Mehta: 
So, if someone invested at the peak, patience is the key. 

But what if they were investing through SIPs? Many people are now searching online whether they should stop their SIPs. What would your advice be? 

Vaibhav Shah: 
Stopping SIPs during a correction is one of the biggest mistakes an investor can make. 

SIPs are designed to help investors invest systematically across different market levels. If you started investing when the Nifty was around 26,000, your SIP would have invested at 26,000, 25,000, 24,000 and maybe even 23,000. 

So, your average purchase level may not be as high as you think. 

That is the discipline SIPs bring. When markets are down, your SIP buys more units. When markets are up, it buys fewer units. This is exactly how rupee cost averaging works. 

If you have a goal in mind, you should continue your SIPs. In fact, if possible, investors should consider SIP top-ups. 

As income and lifestyle expenses rise, your investments should also rise. If you started with a ₹10,000 SIP, then the next year it could become ₹11,000, and later ₹12,100, depending on your income growth. 

A SIP top-up helps you build a larger corpus over time. And if you continue or increase your SIP when markets are lower, you get the benefit of buying more units at lower levels. 

So, SIPs should continue, especially during corrections. 

What Should Lumpsum Investors Do?

Vidhi Mehta: 
And what about someone who invested a lumpsum amount near the market peak? 

Vaibhav Shah: 
If someone has invested a lumpsum and believes in India’s long-term growth story, then this may actually be a time to add. 

India’s demographics remain favourable. We have a young population, strong consumption potential and long-term growth visibility. Short-term hiccups will always come, but the larger story remains intact. 

Personally, I have been investing for many years, and I have never redeemed my investments just because markets corrected. If I redeem, where will I put the money? 

If I believe that India will continue to grow, I may rebalance my portfolio, but I would not exit the market completely. 

Equity is an appreciating asset over the long term. If you move money out of it impulsively, you may end up spending it on depreciating assets like luxury items, cars or lifestyle purchases. 

So, my request to investors is simple: do not let an appreciating asset go out of your portfolio because of short-term panic. 

Should Investors Continue Thematic Funds?

Vidhi Mehta:  A lot of investors had also invested in thematic funds because they believed that sectors like infrastructure or defence would do well. But some of these sectors are now down. 

At this point, should investors stop investing in thematic funds? Or should they move to large cap, mid cap or other diversified categories? 

Vaibhav Shah:  If an investor does their own research, understands the theme deeply, and is convinced about the long-term opportunity, then they may invest in thematic funds. 

But personally, I would not suggest thematic investing for most retail investors. 

The reason is simple: in thematic investing, knowing when to exit is often more important than knowing when to enter. Many investors enter a theme when it is already popular or near the top, but they do not know when to exit. 

Investing is like consulting an expert when you are not well. You may try home remedies initially, but if the problem continues, you go to a doctor. 

Similarly, if investors are unable to make allocation decisions themselves, they should leave it to experts either a financial adviser or a fund manager. 

There are funds that dynamically change allocation between market caps and themes. For many investors, such funds may be more suitable than chasing the flavour of the season. 

What Are Hybrid Funds?

Vidhi Mehta:  Let’s now move to hybrid funds. 

For a new investor, can you explain in very simple terms what hybrid funds are? 

Vaibhav Shah:  A hybrid fund is like a hybrid car. 

Just as a hybrid car combines features of more than one fuel source, a hybrid fund gives investors exposure to more than one asset class. 

Instead of investing only in equity or only in debt, hybrid funds combine different asset classes such as equity, debt, arbitrage, gold, silver or even international equities, depending on the category. 

There are different types of hybrid funds. 

The first category is equity savings funds. These are generally suitable for relatively conservative investors. They usually have a mix of equity, arbitrage and debt, and may aim to deliver returns slightly better than traditional fixed-income products, depending on market conditions. 

The second category is aggressive hybrid funds. These funds usually maintain around 65% to 80% allocation to equity, with the balance in debt. They are suited for investors who want equity participation but do not want to take a full 100% equity exposure. 

The third category is Balanced Advantage Funds, also called dynamic asset allocation funds. In these funds, the fund manager decides how much to allocate to equity and debt based on market conditions. 

For example, when markets were around 26,000, a Balanced Advantage Fund may have had lower equity exposure. If markets correct to around 23,000, the same fund may increase equity exposure in a dynamic manner. 

So, Balanced Advantage Funds help investors move between equity and debt based on market levels and valuation comfort. 

The fourth category is multi-asset funds. These funds can provide exposure to equity, debt, gold, silver and international equities. In cricket terms, they are like all-rounders. They can bat, bowl and field, and they try to give investors a flavour of different asset classes. 

So, hybrid funds offer flexibility. Conservative investors may consider equity savings funds, more aggressive investors may consider aggressive hybrid funds, and moderate investors may consider Balanced Advantage Funds or multi-asset funds, depending on their risk profile. 

What Is the Biggest Advantage of Hybrid Funds?

Vidhi Mehta:  So, is it like a fancy way of saying, “Don’t put all your eggs in one basket”? 

Vaibhav Shah:  Absolutely. 

Diversification is one of the most important principles of investing, and hybrid funds can help investors diversify within a single product. 

One major advantage of hybrid funds is that they can change allocation internally without creating a tax event for the investor. 

Let’s say an investor puts ₹100 into two separate funds: ₹50 in equity and ₹50 in debt. After two years, the equity investment doubles to ₹100, while the debt investment grows to ₹60. 

Now, if the investor wants to rebalance, they may need to sell part of the equity and move money to debt. That sale can create a tax event. 

But in a hybrid fund, the fund manager can rebalance within the fund structure without the investor having to sell units separately for rebalancing. 

This makes hybrid funds a convenient and tax-efficient way to manage asset allocation, depending on the category and structure of the fund. 

Another advantage is low or negative correlation between asset classes. For example, in recent times, Indian equities may not have done well, but gold and silver performed strongly. Debt can also provide stability when equity is volatile. 

So, a good mix of asset classes can help the portfolio across different market conditions. 

Are Hybrid Funds Good for First-Time Investors?

Vidhi Mehta:  For a first-time investor, would a hybrid fund be a good starting point? 

Vaibhav Shah:  Yes, for many first-time investors, a hybrid fund can be a good way to get introduced to markets. 

It allows them to participate in equity while also having some allocation to other asset classes. This can make the experience less volatile compared to a pure equity fund. 

It is like having both an aggressive batsman and a defensive batsman in a cricket team. Depending on the market condition, one asset class may perform better than the other, but the combination can work well across cycles. 

Does Rebalancing Speed Matter?

Vidhi Mehta:  When a fund manager rebalances a fund, does the speed of rebalancing make a real difference to the NAV? 

Vaibhav Shah:  Yes, if a fund manager is able to rebalance faster and more effectively, it can have a positive impact on the portfolio. 

For example, if the market rallies and the fund have higher equity exposure, it can participate in the upside. If the fund manager reduces equity when markets look expensive and increases it again at lower levels, it can potentially add value. 

But timing the market is extremely difficult. Even the best fund managers will tell you that time in the market is more important than timing the market. 

That is why many Balanced Advantage Funds or dynamic asset allocation funds make tactical shifts rather than trying to predict exact tops and bottoms. 

The objective is not to perfectly time the market. The objective is to manage allocation in a disciplined way. 

What Is Gift City and Why Should Investors Know About It?

Vidhi Mehta: Let’s now move to Gift City. 

There is a lot of discussion around Gift City, but many retail investors may still not know what they can actually do with it. 

Can you explain the basics? What is Gift City and how can investors access global markets through it? 

Vaibhav Shah:  If you look at how global investors invest into India, many of them come through jurisdictions such as Dubai, Singapore, Luxembourg or Mauritius. These are financial centres that have built an ecosystem to attract and route capital. 

The idea behind Gift City is to create a similar financial jurisdiction in India one that can attract capital, create jobs, build expertise and make India a strong global financial hub. 

For Indian investors, Gift City can also open access to international markets. 

In recent years, mutual funds in India have faced restrictions on fresh international investments because the industry-wide limit was reached. Through the Gift City route, investors can access certain global investment opportunities. 

To invest internationally, investors use the Liberalised Remittance Scheme, or LRS. Under LRS, an individual can remit up to $250,000 per financial year outside India for permitted purposes, including investments, education, travel, medical expenses or buying property. 

Through Gift City, investors can access markets such as the US, Hong Kong, China, Korea, Japan and others, depending on the product available. 

This matters because many global themes are not meaningfully represented in Indian listed markets. Themes such as semiconductors, AI, data centres, blockchain and rare earth materials are led by companies outside India. 

So, if investors want exposure to such global themes, Gift City can be one route. 

How Much Should Investors Allocate to International Markets?

Vidhi Mehta: If an investor has, say, ₹20 lakh and wants to invest internationally, how much allocation should they consider? 

Vaibhav Shah: Rather than focusing on the amount, investors should think in terms of portfolio allocation. 

A broad range could be around 5% to 20% allocation to international markets, depending on risk profile. A conservative investor may start with around 5%, while a more aggressive investor may consider going up to 20%. 

Global allocation helps diversify the portfolio. Different countries have different strengths. Some are strong in commodities, some in technology, some in AI, semiconductors or innovation-led businesses. 

The question investors should ask is: why invest only in India if the best companies in some sectors are outside India? 

The way we buy global products in our daily life whether it is a Korean brand, a German car or a global technology product we should also think similarly when investing. If another country has superior companies in a certain sector, investors can consider taking exposure there. 

Can Investors Do SIPs Through Gift City?

Vidhi Mehta: Through Gift City, is it only a lumpsum investment route, or can investors also do SIPs? 

Vaibhav Shah: It depends on the product. 

For AIFs, the minimum ticket size is generally higher. Some funds may allow staggered entries, while others may prefer lumpsum investments. 

For retail funds, the ticket size can be lower, depending on how the product is structured.  So, investors need to look at the specific product and its investment rules before deciding. 

Is AI an Important Long-Term Theme?

Vidhi Mehta:  You have spoken about AI as a major theme. Does AI become an important theme that investors should definitely have in their portfolios? 

Vaibhav Shah:  AI is a disruptor of disruptors. 

It is a theme that can change how businesses operate. It can improve productivity significantly, and almost every business will have to incorporate AI or automation in some form.  So yes, AI is a structural theme with a long runway.  However, in the short term, some companies in this space may become overvalued. That happens in every cycle. Investors can keep this theme on their radar and look at opportunities during corrections. It is a theme that could remain relevant for many years or even decades. 

Should Hybrid Fund Investors Also Consider Gift City?

Vidhi Mehta: 
If someone is already invested in a hybrid fund, should they still consider allocating through Gift City? Or would that make the portfolio too complicated? 

Vaibhav Shah: 
Hybrid funds and Gift City exposure serve different purposes. 

Most hybrid funds may not be able to provide meaningful international exposure because of industry limits. A multi-asset fund may give exposure to equity, debt and gold, but global exposure may still need to be added separately. 

So, combining a hybrid or multi-asset fund with a Gift City product can help investors build a more diversified portfolio across asset classes and geographies. 

But allocation should always depend on the investor’s risk profile. 

If your asset allocation is right, then a fall from 26,000 to 23,000 in Nifty may not impact you as much because other asset classes may balance the portfolio. 

The problem comes when investors are overallocated to only one asset class. That is when panic starts. 

A good blend of hybrid funds and global exposure can make the portfolio more balanced. 

Final Advice for Confused Investors

Vidhi Mehta: Last question. If you had to give one line of advice to an investor who is confused or panicking right now, what would you say? 

Vaibhav Shah: Avoid the noise. 

There will always be different opinions. Some people will be very negative; some will be very positive. News channels, newspapers, and market commentary can create more confusion. 

Investing becomes simple if you keep it simple. 

Invest with a long-term goal in mind. Focus on what you are investing in, not just on what the market did today. 

For the next few weeks, if needed, stay away from excessive market noise. Do not let every headline decide your investment behaviors. 

Conclusion

Vidhi Mehta: Thank you so much, Vaibhav. It was great speaking with you.  And to everyone watching, I hope this episode gave you more clarity and confidence to navigate your investment journey.  Remember: markets will move, headlines will change, but your investment decisions should be guided by your goals, risk profile and time horizon. 

Thank you for watching Funds ka Funda. 

Disclaimer: Investments in securities markets are subject to market risks. Please read all related documents carefully before investing.