MFs safer in volatile markets
For those who shy away from the volatile equity markets, experts advice the mutual funds route
By Kavita Sriram, TNN |
For those who shy away from the volatile equity markets, experts advice the mutual funds route. During the period of steep corrections, both direct investors in the market and mutual fund investors, suffered losses. The investor mood is usually on an upbeat when the market is booming. But during a fall, they tend to panic. New investors, simply sell everything and quickly get out with loses. However, seasoned investors look for opportunities even in volatile markets.
Here are a few points to keep in mind when investing in mutual funds in volatile conditions:
Diversify
Ride through the volatile markets by amply diversifying across different categories , sector, segment, schemes and fund houses. On the other hand, over diversification too brings with it a bundle of woes. Through effective diversification , the investor can achieve his objectives and reduce risk effectively. Build a strong portfolio with the right mix of funds. The fund manager plays a critical role in the selection of stocks that make up the fund.
Some people end up with similar funds from different fund houses, with same objectives. Like two largecap growth funds from two different fund houses. This simply represents two funds from the same fund category. The result is inefficient diversification.
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Go long-term Have a long-term perspective . Only those who need money urgently sell their lot in a distress market condition . Otherwise, stay invested . The volatile markets will stabilise soon. If you decide to invest in diversified equity funds with a strong track record, remember to stay long-term . These funds will bounce back once the markets pick up steam.
SIP works well
Investing regularly in systematic investment plans (SIP), irrespective of market behavior, will help brave volatility. Investing a small amount every month will bring down your risk tremendously. Otherwise, some investors who get the timing wrong could invest a lump sum, when the markets are at soaring high levels.
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Defensive stocks
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A falling market is not appealing to the investor. He can wait till the downside ends. The more adventurous can invest in funds that inturn put the money in defensive stocks. Defensive stocks are not so deeply affected by factors that make the markets volatile. However, it is tough to tell how much these will soar in an upswing. Reduce risk
Reduce your exposure to risk and anticipate less reward. It makes no sense to expect big returns out of volatile markets. Taking too many risks can turn your hard-earned money into smoke.
Investment discipline
Strict investment discipline is critical for those who intend to ride safe and see profits. Spontaneous investors seldom get the timing right and can lose a lot.
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