Three Strategies For Mutual Fund Investors In A Volatile Market


How does the spread of Omnicron COVID-19 variant affect the mutual fund investors, you ask? Well, if we had to explain in one line, we would say that it would result in more in near-term volatility in your equity holdings. What’s worse, unlike the previous time, there is almost no scope for central banks to support and aid in the growth of the economy with any form of impetus such as rate cuts. What’s more, there are chances that the government also wouldn’t be willing to stretch their hand by offering financial aid in the form of fiscal stimulus. As a result, the chances of the government imposing travel bans or full-scale economies or any form of restrictions that may hamper the economic growth is quite grim. Irrespective of the new COVID-variant’s spread graph going in any direction, be it severe, transitory or subdued, there are huge chances of near-term volatility in the stock markets as the markets do not like any form of uncertainty.

In such scenarios, should equity investors hold their positions in the financial markets? Firstly, investors must realise that equity mutual fund investments tend to be volatile in nature. Thus, investors must adopt a mid-term or long-term investment approach when it comes to buying equity holdings. Usually, mutual fund experts advise their clients to allot only a part of their savings that they wouldn’t require in the next 7-10 years towards their equity investment corpus. This would ensure that they do not get bothered with the short-term fluctuations in the markets such as now. Such investors must continue to hold the units of equity mutual fund schemes.

Strategies to help you float your boat in the volatile market

The following mutual fund investment strategies may do well in a volatile market situation:

  1. Systematic mode of investment – SIP

Investors might consider investing in mutual funds through a disciplined mode of investing – systematic investment plans (SIP). Thanks to the concept of rupee cost averaging, under SIP mode of investment, you end up purchasing higher number of units when the markets are at its bottom and vice versa. So during volatile market situations, when it is cumbersome to accurately predict the market tops or bottom, SIP mode of investment can go a long way.

  1. Systematic mode of transferring your assets – STP

If you have a lumpsum sum of money lying around, you might consider either making a lumpsum investment or SIP investments in liquid funds and then systematically transferring your funds to equity plans. The idea behind this mode of investment is to benefit from the concept of rupee cost averaging and leverage the benefits of investing in equity markets in a disciplined and staggered manner.

  1. Balance advantage funds (BAF)

These types of mutual funds invest in a mix of assets such as debt securities, equity securities, and sometimes gold as well. In a scenario when the debt or the equity markets go down, the fund manager has the levy to rebalance their portfolio and reduce their equity holdings in the portfolio. This may work in the favor of the investors during a period when there is near-term volatility in the markets.

Leave A Reply