Stock markets typically remain volatile during elections, especially on the counting day, and this year was no different. The Nifty 50 index plunged around 6 per cent, while the BSE Sensex was down by about 5 per cent in the early trading session on Tuesday, June 4, as the counting of votes for the 18th Lok Sabha began. In contrast, the markets were at record highs just a day before when the exit polls gave a resounding victory to the Bharatiya Janata Party (BJP).

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However, a market drop also presents opportunities for some investors who want to make the most of falling stock prices to acquire and add them to their portfolio in the hope of making better returns when their prices eventually rise. As such, if you are an existing investor, should you change your investment strategy for retirement and make changes in the portfolio?

Should You Churn Your Investment Portfolio In A Sliding Market?

Preeti Zende, a Securities and Exchange Board of India (Sebi)-registered investment advisor (RIA), says, “Historically market shows a rise after an initial downturn if results were not as expected. So, buying in a dip strategy can work in such volatility. However, if your retirement is long-term, unnecessary churning of your portfolio will result in tax implications and a cut in compounding effect. But, yes, if retirement is five years away, then come out of equity asset class in a staggered way and protect the capital.”

While buying the dip may be useful for some small investors with long-term goals, buying assets during a temporary drop in share prices may not be very useful. Hence, churning the portfolio must be a calculated and well-planned action instead of an impulsive one.

When it comes to retirement goals, Zende adds, “When the market is volatile, ensure you stick with large-cap or index funds and Flexi-cap funds. Currently, one should avoid taking undue exposure in mid- and small-cap funds.”

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Data shows that large-cap mutual funds generated around 35 per cent annual returns, while flexi-caps’ average returns were around 39 per cent. Also, Nifty index funds’ annual returns were near their benchmark Nifty 50 Total Return Index of nearly 27 per cent, as of June 3, 2024.

Short-term upheavals can matter most for short-term investments. If your financial goals are far away or more than 10-12 years, such as retirement planning, children’s education, etc., a disciplined, consistent investment is more important than churning based on short-term market conditions. Zende suggests: “Whatever the market scenario is, keep investing as per the asset allocation required for your retirement goal.”