Do low-volatility funds help amid market uncertainty?

A low-volatility strategy outperforms in bearish markets but check if it fits your portfolio

- Jash Kriplani

The stock markets have been experiencing heightened volatility amid selling by foreign portfolio investors, downgrades to corporate earnings, and slower economic growth. The Nifty 50 has corrected over 10% since 27 September.

Low-volatility funds aim to reduce the impact of market volatility by investing in a basket of stocks that tend to be less volatile. These are passive funds that track low-volatile indices. The funds invest in stocks included in a low-volatility index, which picks stocks on the basis of volatility scores rather than business fundamentals. Volatility is calculated as the standard deviation of daily price returns for the past one year.

Performance

In the recent market scenario, funds tracking the Nifty 100 Low Volatility 30 have beaten the Nifty 50 in six-month and one-year periods. The low-volatility funds have delivered 6% returns in a six-month period, while the Nifty 50 has delivered 4% returns. The Nifty 100 Low Volatility 30 has delivered 22% returns in a one-year period, beating the Nifty 50's 19% returns.