Invest through mutual funds to avoid the effects of low market volatility

Image Credit: The Financial Express

Should I invest in mutual funds now? This is a common question that many investors have at the moment and the same may be true for you as well. Well, markets sometimes witness rapid increases although the falls are also no less. For instance, sometime earlier, a fall of 700 points was observed for the BSE Sensex on a single day while the very next day, it went up by 700 points as well! One day, the Sensex went up by approximately 200 points around the morning although it closed for the day with a slight drop as well.

If you wish to avoid fluctuations and daily risks related to trading in stocks, you should invest in mutual funds. They are the best way to diversify and spread out your investments in equities without directly taking on the risks involved. You should also understand how volatility and risk related in an investment beforehand. Any volatility in the market or fluctuation owing to stock-specific factors or company-specific aspects along with geopolitical and economic developments, oil prices, currency fluctuations et al may lead to your investment value going down. This happens due to a fall in stock prices/values of the units that you have invested in. This will naturally reduce the investment value and may even wipe out your capital in a serious situation.

Are SIPs the best option?

A SIP(systematic investment plan) could be your best investment option in this regard instead of investing a lump sum amount in mutual funds. This is because mutual funds while being safer than direct stock market investments and in spite of being professionally managed by experienced fund managers, are subject to some market risks as well. Investing small amounts through SIPs will help you lower risks and spread them out while benefiting from rupee cost averaging and the sheer power of compounding over a sustained time period. SIPs will protect your investments from sudden fluctuations in the market and if you stay invested for a longer time period, you can reap the rewards of handsome returns that may beat inflation with ease.

Check out various types of funds including liquid funds in India. You may opt for funds that come with higher liquidity, i.e. you can easily redeem or withdraw your investment if that is convenient for your needs. However, if you are looking to earn superlative returns through locked-in investments, consider ELSS (equity linked savings scheme) which has a 3-year lock-in tenure. However, you do get tax benefits up to Rs. 1.5 lakh on your investment under Section 80C of the Income Tax Act as well. The Low Volatility Index is majorly the benchmark of Nifty and is named as Nifty Alpha Low Volatility 30 Index. For the same, 30 stocks are chosen from Nifty’s 100 while 50 are chosen from Nifty Midcap. You may invest in several mutual funds offering attractive returns including ETFs (exchange-traded funds). This will give you the opportunity to get exposure on the basis of the portfolio of stocks that you have selected. You may benefit from returns given by the Nifty Alpha Low Volatility 30 Index as well.

Some other aspects worth remembering

The objective here is to lower volatility levels for your investment information along with overall risks while increasing capital diversification. Benchmark indices are still going after highs, there has been a major correction in mid and small cap categories in recent times. People are looking for safer products now including dynamic asset allocation and equity savings funds for instance. Mutual fund firms are also emphasizing on equity savings funds as comparatively safer products offering good returns in comparison to equity funds along with ensuring lower volatility.

Volatility levels are lower since the exposure is comparatively lower to stocks (25-30% on an average). The returns are currently more than pure equity based funds owing to corrections in the market. These products are preferred more by investors in bearish market scenarios although they should never be taken as alternatives for equity funds. These funds are good for those with lower risk tolerance and are suitable for first-timers and retirees alike. Dynamic asset allocation funds may help in tapping market upsides better since they mostly have a higher chunk in equity whenever market valuations are on the lower side. These funds will also safeguard the downside by lowering equity exposure majorly at their peak or whenever market valuations are on the higher side. The switch between debt and equity will take place on the basis of various essential factors including dividend yields, future earnings growth and so on. The execution of buying at a low and selling at a high is really important and tough for individual investors to carry out personally since they may be emotionally impacted. As a result, professionally managed mutual fund advisors are best suited to carry out these tasks. Of course, you should start investing in mutual funds at the moment in order to grow wealth considerably for the future. However, do consult professionals before taking the plunge in order to better understand which is the best investment for mutual funds as well and how best you can capitalize on the same.

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6 days ago

Great work, Thank you….
<a href=””>Hunch Trading</a>
India’s biggest stock broker offering the lowest, cheapest brokerage rates for futures and options, commodity trading, equity and mutual funds. The best online trading platform for stocks, IPOs, mutual fund in India.

7 days ago

Great work, Thank you….
<a href=””>Hunch Trading</a>
India’s biggest stock broker offering the lowest, cheapest brokerage rates for futures and options, commodity trading, equity and mutual funds. The best online trading platform for stocks, IPOs, mutual fund in India