What to do When Share Market Crash? 5 Ways to Prepare For It

Introduction

Finance is a common worry for everyone. It is quite reasonable that a person with little or no money would be worried. But worry also exists even when one is comfortably well-off, especially if a significant amount of resources are invested in the stock market, which suffers a crash. In 2020, stock markets worldwide crashed spectacularly during the first wave of the coronavirus, and most investors were blindsided.

Market corrections or stock market crashes are unpredictable. Still, investors can take a variety of measures to overcome the negative effect that these events have on any investments they have in their portfolios.

So let's explore as an investor 5 ways to prepare during a market crash in India in 2025.

Stock Market Crash: Definition

A stock market decline is an unexpected and immediate drop in stock prices. A stock market drop can happen as a consequence of a single large global disaster or an economic depression or the bursting of a long-term speculative bubble. Reflexive public fear, increased panic selling drops prices even more.

While no specific number is assigned for a stock market crash, they are usually described as an abrupt fall of double-digit percentage within a few days. Stock market crashes can have a significant economic effect.

What to do When Stock Market Crashes? 

5 Things to do in Falling Market

1. Avoid Panic Selling

Undoubtedly, selling off your investments whenever you face a loss during a market correction would seem attractive. Any investor can easily be influenced by negative news such as a pandemic, scams being revealed, or asset bubbles that are on the verge of bursting.

2. Avoid Panic Buying During A Market Crash

Similar to making panic buys, panic sales are equally dangerous. Contrary to popular belief, panic buying can even be described as purchasing in a state of joy; targeting a random amount which becomes an obstacle towards your investment goals.

When markets are down, it certainly seems as though getting an investment at a reasonable valuation is ideal. 

However, a single key aspect many forget to consider in these scenarios is their risk appetite. The buying blindly that tends to arise during a market slump, sadly leads investors to pour money into Equities substantially exceeding their true risk appetite.

3. Consider Portfolio Rebalancing As An Investment Strategy

Portfolio rebalancing enables an investor to reduce the overall risk in their investment portfolio to provide better risk-adjusted returns.

This strategy entails periodically conducting the purchase and sale of the investments so that the optimal allocation of each asset class is preserved.

4. Take Advantage of Tax Laws

Tax laws offer some benefit in selling mutual funds or stocks by purchasing in tax-loss markets. Selling securities with capital losses enables an individual to shift the burden of tax partially, and in turn, this captures the capital gains with lesser tax and more profit.

However, one can strategically utilise this technique and take advantage of stock market performance quarter by quarter throughout the year. Capturing this loss of performing mutual funds and stocks gives an ideal opportunity with the aim of offloading and replacing the depreciating stocks with higher yielding investment opportunities.

This technique has also proved useful whilst investors balance their investment portfolio. This has the potential to lower your tax payments and at the same time enhance the diversification of your investment portfolio.

5. Build an Emergency Fund

A more effective way to manage economic adversities is to have an emergency fund ready. If you haven’t started one yet, make sure to start it as soon as possible. If you already do have an emergency fund, then a market downturn is a perfect moment to increase it, using up to three months’ worth of expenses. 

Conclusion

Stock market crashes can be tough to predict; however, staying calm can lead to smart choices that will reduce potential risks. In times of difficulty, selling or buying excessively can lead to substantial losses, so instead, utilise an emergency fund that provides a financial shield. Following these techniques will ensure that you safeguard your investments and remain financially stable.

Disclaimer: NOT a buy or sell recommendation. No investment or trading advice is given. The content is purely for educational and information purposes only. Always discuss with an eligible financial advisor before investing.