Tackle a Bear Market with Mutual Funds

When the markets begin to slide into a bear market, most investors sell their investments hastily, resulting in a negative investing experience. However, a bear market is an excellent opportunity to invest in equity mutual funds. This article will discuss what a bear market is, how it varies from a market correction, and how to deal with it.

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Since November 2021, the global markets have been in a bear market with just a few economies such as India being able to rebound amid solid economic data and reducing inflation. In fact, in 2022, the Indian markets have outpaced major global markets. Indian markets concluded 2022 with a positive 4 percent return in contrast to numerous worldwide markets that saw single-digit and double-digit negative returns. Is it correct, however, to suggest that the Indian markets are impervious to a bear market? That is not entirely correct.

The Indian market saw a large bear run in 1992 during the Harshad Mehta scam, then again in 2008 during the global financial crisis, then again in 2015, 2016, and ultimately in 2020 owing to the pandemic. As a result, the Indian markets have had their fair share of a bear market. In this article, we will look at mutual fund strategies and tips that might help you deal with a bear market. However, before we proceed, it is critical to grasp what a bear market is and the phases of a bear market.

Defining a Bear Market

A bear market is characterised as a long period in which stock markets fall by 20 percent or more. When a downturn lasts more than two months, it is regarded to be the start of a bear market. A bear market is defined by negative returns. The market mood is gloomy, which leads to additional stock sell-offs, further weighing down the market. Stock market declines can be caused by a variety of events, including panic selling by investors in response to an economic crisis such as an unforeseen catastrophic occurrence, a financial crisis in one sector, a market correction, and a drop in company earnings.

Phases of a Bear Market

Bear markets are often distinguished by four different phases: