What Should Mutual Fund Investors Do to Withstand Volatility?

Volatility in the market is something that can put even the most prudent investors at a shock. We, as investors, are often guided by our intrinsic emotions of greed and fear; thus we prefer investing when the markets are up and sell when the markets are down, at times even at a loss. Experts believe it to be the worst that one can do to their mutual fund investments. With the clouds of uncertainty hovering over the market, one should learn to behave rationally to beat the emotional dilemma, or just simply be patient.

And as they say, “There is something good in everything, if only we look for it,” the same stands true for the market volatility as well,especially when the investment is made via mutual funds. Let’s find out how mutual fund investors can combat the volatility of the market.

Stick to Your Plan

Changing plans or basic investment strategy based on the market situations is something no expert would ever recommend a mutual fund investor. In adverse times, one can re-balance or modify their portfolio a bit considering the trends of the market. Portfolios which are designed after risk profiling and keeping in mind one’s long-term investment objectives in mind are capable of sailing smoothly through the turbulence of the market.

Invest Regularly and Systematically Despite Volatility

If you invest regularly either on a monthly or yearly, then the short-term downturns will not have a significant impact on your investments, especially in the long run. Take help of Systematic Investment Plans of mutual funds to beat volatility. It offers the benefit of compounding and rupee cost averaging, thus ultimately helps you to avoid the perils of market timing. It should be noted that equity investments, in the long run, have fared better than the direct equity investments, thanks to professional fund management.

Never Do Away with SIP Investment in Volatile Times

It is challenging to cope with the losses and stomach the volatility of the funds where you have invested in. During volatile times, people often stop their SIPs and redeem their investments in order to put a halt to the losses recurred during a volatile market. It is human behavior that we as investors feel losses more than higher returns. But one should understand that volatility is a friend, especially if you are a long-time investor.

Let’s understand this with an example of two investors who invested in the same funds:

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Here, Investor A started his SIP investment with Rs 5000 on January 1, 2003, and he has continued his investment till date. The current value of his investment is around Rs 41 lakh, whereas the amount he has invested was just Rs 9.50 lakh.

Now, let’s move to Investor B. He too has started making the investment with the same amount on the same date as that of investor A. However, in the market crises of 2008, he stopped his investment. His investment value would have grown to become around Rs 21 lakh today, and the money he has invested was just around Rs 3.45 lakhs.

Considering both the cases as discussed above, we can tell that investor A has done better by holding on his patience even in the market downfall and it has made him earn Rs 20 lakhs more than investor B.

Besides, mutual fund gurus even believe that most of these actions of redemption and stopping of SIPs are taken by DIY investors or those who make investments on their own in direct plans of mutual funds. Such cases are not quite common in clients who are associated with reputed online mutual fund distributors or regular plan holders where the experts guide them on a regular basis. 

Take Advantage of the Market Opportunities

One must buy more equities when the market falls as it could be a hidden boon for the investors. Opportunists in the mutual fund ground understand that it is beneficial to buy stocks or invest in schemes at a lower price (when the NAV is low) and sell or redeem when the market is on the rise. Stick to your asset allocation, and utilize the market dip as an opportunity to make new investments.Always remember that no phase is fixed in the market, the focus should be on creating a diversified portfolio which is in line with your risk appetite and financial goals.

Summing Up

As conditions become challenging, investors often get tempted to stop their SIPs and other mutual fund investments midway and redeem their investments to minimize the losses. However, this is the only thing that one should restrict. Experts believe that falling markets are the best time to adapt to accumulation strategy, especially for mutual fund investors. Rather than giving all your time thinking about the turbulence, one can plan for making new investments every now and then with changing needs of life. A good investment plan can help one ride out of the volatile peak with ease and achieve one’s set financial goals in time.