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Introduction
Recession: the word itself triggers fear. Slowing economies, falling markets, job losses — it feels like the worst time to invest. But is it?
Surprisingly, recessions often offer the best long-term investment opportunities, especially through mutual funds. In this blog, we explore whether investing during a recession is safe or risky — and what smart investors actually do.
Let’s understand this better through the story of Dev and Asha during the 2020 COVID-led recession.
24/06/2025
Mutual funds mirror the market, but each category behaves differently:
Equity funds drop initially but recover well post-recession.
Debt funds, especially liquid/short-duration, remain stable and provide income.
Balanced Advantage Funds automatically reduce equity exposure when markets fall.
Real-Life Example: Dev vs Asha (2020 Recession)
| Insight | Explanation |
|---|---|
| Recession = Opportunity | Asset prices are low, giving better future returns |
| SIP during recession is powerful | Rupee cost averaging gives more units at lower NAV |
| Stay diversified | Combine equity and debt for balanced performance |
| Avoid timing the market | No one knows the bottom — invest systematically |
Conclusion
Investing during a recession feels risky, but it's actually one of the safest times for long-term investors. Mutual funds, especially those with dynamic asset allocation, can weather the storm. What matters more is your behavior, not the economy.
Don't stop your SIPs during downturns — consider increasing them if you can. Choose funds with smart allocation strategies and let time and patience do the work.
Summary Table: Investing During Recession
| Fund Type / Strategy | Avg. Return (Post-Recession CAGR) | Avg. Risk (Volatility) | Avg. Investor Behaviour |
|---|---|---|---|
| Balanced Advantage Fund | 10% - 12% | Medium | Stable investing, less panic |
| Equity SIPs (continued) | 12% - 14% | High | Long-term focus, compounding effect |
| Exited during crash | 4% - 6% | Low | Emotional reaction, delayed growth |
Dr. Satish Vadapalli
Research Analyst
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