5 Points to Consider before investing in equity funds in volatile markets

2 Mins read

The stock market is unpredictable. It might open at a high and might close at extremely unexpected low. This is why investments in direct equities are considered to be extremely volatile. There is a chance that you may even lose out on your initial investment amount. Investments in stocks are not for the faint hearted for those who panic and take decisions. The key here is to remain patient and wait for the market to become normal.

Investors might be aware that the performance of mutual fund schemes like equity funds is directly affected by market vagaries. Certain investors may prefer staying away from the market in case it turns highly volatile. Even when the markets normalize, these investors are still concerned about the safety of their finances and are left in a dilemma whether they should enter the market or wait further. Although equity funds invest in stocks, there are around 6000 stocks currently listed at the exchange. The performance of these stocks may vary from time to time. So even if the markets are volatile, the performance of your equity mutual fund scheme will vary depending on the stocks which your fund manager has chosen for outperforming its underlying benchmark.

Points to consider before investing in equity funds in volatile markets

Investors generally don’t pay attention to their performance of their equity mutual funds when the stock markets are all time high and the indices are outperforming their own records. The main concern lies when it comes to investing your hard-earned money in volatile markets. If you haven’t been able to reap the benefits of high performing markets and wondering when you should invest your money to gain better returns, here are 5 things to keep in mind.

Do not time the market

As the trend goes, when the markets are all time high, they are going to go down soon. Keeping this in mind, if you decide whether you want to invest in mutual funds or no, it might not be a feasible way to do it. Because the market keeps on fluctuating from time to time. Intraday traders who want to buy low and sell high should be concerned with such aspects of the markets. Equity mutual fund investors must understand that they are investing in a scheme that offers decent risk-adjusted returns and hence should not try to time the market.

Stay true to your investment objective

The three things which investors take into consideration while investing is their financial goals, investment horizon and risk appetite. Even while investing in volatile markets investors should stay true their investment objective and not get carried away. Always choose schemes that are best suited for your preferences, schemes whose investment objective aligns with that of yours.

Always have a long term investment horizon

Irrespective of what the markets have to offer currently, remember that investing in equity mutual funds must be for long term. That’s because equity mutual funds might not be able to perform over a short duration. These schemes need their own time to show their true potential. Think about what your gains will be seven to ten years from now rather than worrying about existing market conditions.

Good fund management

The performance of actively managed funds like equity funds directly depends on the performance of its underlying securities. These stocks / securities are generally chosen by fund managers keeping in mind the risk profile and investment objective of the scheme. It is essential to choose a scheme that is handled by an elite team of experienced fund managers.

Start a monthly SIP

Systematic Investment Plan is the best way to ensure that you save and invest a fixed amount at regular intervals irrespective of how the markets are performing. SIP ensures that you benefit from volatile markets as low NAVs allows investors to receive more mutual fund units.