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As an investor, how do you navigate through times when markets are volatile? What do you do when there is a market correction? Investing in mutual funds during volatile times is much like surfing. If you pick the right type of mutual funds, you can sail through the high waves of volatility. In this article, here’s a low-down on types of mutual funds that you can invest in when the market is highly volatile.
As an investor, you can pick from different types of mutual funds for specific financial goals. Understanding each can be confusing. If you are a first-time investor looking for modest returns and low risk in an otherwise volatile market, you can pick from large cap mutual funds. Large-cap funds are relatively safe and can give you high returns especially when market prices dribble between new lows and highs.
These schemes invest in large-cap companies or companies with large market capitalisation at or above Rs. 200-300 billion. These funds invest in blue-chip companies(typically 100 largest listed companies in India). For beginners, market capitalisation is what you get when you multiply the stock price of each share with the outstanding shares of the company in the market. This is a guided estimate of the valuation of the company.
There are again different types of mutual funds for the experienced investor. For the seasoned ones, arbitrage funds are a good bet.
An arbitrage fund is similar to an equity mutual fund. Arbitrage funds make money off the difference in prices of an asset in two markets - the equity and futures markets. Let us take a look at the characteristic features of arbitrage funds.
Among the different types of MFs, passive funds like the exchange-traded funds do well during particularly rough times because of their lower expense ratio.
An exchange-traded fund is benchmarked to indices like NIFTY, CNX or BSE Sensex. Units of ETF are traded on exchanges quite similar to how stocks are traded. For instance, you can buy and sell units of mutual funds in real-time at continually changing prices of stock exchanges.
While buying ETFs, you are essentially buying into an exchange-traded mutual fund that tracks the yields and returns of its benchmark index. This helps you manage your expected returns accordingly.
ETFs or indexing is catching pace in Indian markets, thanks to the Government’s support received for these products to deepen the stock market. Several Government fund management bodies such as EPFO and Department of Investment and Public Asset Management (DIPAM)invest in ETFs.
SIPs allow you to invest small amounts regularly in equity mutual fund schemes. This is a suggested route for new investors. This gives investors access to a portfolio of diversified stocks across sectors and industries cherry-picked by expert fund managers.
Investing in SIPs helps you get rid of your concerns about market volatility. When you invest in SIPs, you do not need to take the headache of timing the markets when there is a market correction. Technically, a market correction indicates a price revision of typically up to 10% in a stock index. These corrections are often temporary. The market discovers the optimum valuation of a stock in the process of price discovery.
When the markets are choppy, and it is difficult to predict price behaviour, experts suggest that investors should hold on to their SIPs for the long run. Holding on to the SIPs will iron out the impact of these sharp and temporary market corrections in the long term.
When prices fall, you can accumulate more units of SIPs, and when rates rise, you can limit your buys. Even if you are a seasoned player, opting for SIP can work in your favour. You can make lump sum investments in SIPs when the markets undergo correction to take advantage in the long term.
DBS Bank offers Mutual Funds that are instant, paperless, signatureless – even transaction fee-less! What’s more? You get to choose from 250+ Mutual Funds across 15 top-performing asset management companies. So why wait? Login to digibank (app or internet banking) and start investing in a flash with instant Mutual Funds on DBS Bank.
Read up more on Mutual Funds here
Mutual Fund investments are subject to market risks, read all scheme related documents carefully before investing.
