MANAGING EQUITY MUTUAL FUND INVESTMENTS DURING MARKET VOLATILITY
Investors India|October 2020
MANAGING EQUITY MUTUAL FUND INVESTMENTS DURING MARKET VOLATILITY
The stock market is not a one-way highway.
Sanjeev Puri

There are ups and down especially in the short to medium term. However, over the long term, the momentum has been seen to be on the upside. Hence, long term investors mainly those investing in equity mutual fund need not worry much about the short-term volatility in the market. An optimal approach for equity mutual fund investors to truly benefit from a volatile market or a market crash is to ramp up the SIP amount when the valuation becomes attractive and reducing the SIP amount when the markets are at a peak.

Markets are bound to turn volatile and be unpredictable. As a mutual fund investor, here are a few things to follow to minimize the impact of market turbulence and reap the benefits of long-term investing.

Do not listen to predictions: It’s absolutely impossible for anyone to predict the movement of markets. Period. Stay from predictors at all cost. Factors affecting market movements have increasingly become more complex, interrelated and dependent on global events as well. Further, there are technical factors too at play. When technical support levels are broken by market, the next level gets projected as the support. But then, markets move on their own and all these supports can be broken. Investing based on predictions could be financially damaging. Be invested in markets, one never knows when the markets reverse and bounces back.

Keep SIP running: All those MF investors, investing through SIP may continue with their SIPs. And there are convincing reasons to do that. SIP’s are not making all your fund get exposed to market volatility all at once. When index is down, they get more units while when the index rise, the units bought is less. This approach helps in accumulating units, the average cost of which is lesser than otherwise. The risk of volatility gets minimized through SIP approach.

Equity markets are synonymous with volatility and unexpected state of events leading to unpredictability in returns. An ideal way to profit from it is to buy at bottom and sell at highs. But that’s easier said than done. Much as it is futile to try and time the market, there is a scientific way to keep your purchase price down without having to second-guess the market.

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October 2020