How to Manage Your Mutual Fund Investments in a Volatile Market?

From February 2020 to February 2021, it was a wild ride for the equity markets. From 11,600 in February 2020 to 8,080 in April 2020 and then breaching the all-time high of 15,000 in February 2021, Nifty50 sure was a busy index in the last 12-months.The volatility in the markets reached an extent that even seasoned investors were finding it difficult to cope with the wild moves. In such a scenario, what should people do with their mutual fund portfolios? Here are a few expert tips that deserve your attention-

Volatility can be both good and bad. Good because it provides investors with the opportunity to buy or sell stocks at the right price. Bad because if any investment was made without a thorough strategy, the market could end up punishing you severely.No matter if you are about to invest in mutual funds, redeem the units, or continue holding, it is wise to stick to your investment strategy. Don’t let the volatility impact your emotions or mindset. There is hardly any place for emotions in the financial world.By exiting your investments or positions haphazardly just because the market is volatile, you might end up losing an opportunity of a lifetime. Rather than panicking, try to get a clear picture of the current scenario and then work your way towards a decision.

While the markets are at an all-time high now, things won’t remain the same for long. If you might have invested in equity funds last year, there is a major possibility that your portfolio would now be showing double-digit growth. While this sure is an excellent achievement as you decided to invest when markets were touching newer lows, you need to plan for a similar scenario in the future too.The best way out is to diversify. If 100% of your mutual fund investment is in equity funds, you should consider spreading out the amount to other categories, like debt, ETFs, and liquid funds.While you can still hold the majority of your investments in equity funds, dedicate some portion to other fund categories as they will bring in the much-needed cushion. In case if the equity market reverses from this level, you’ll still get to keep a good portion of your profits if they are invested in other fund categories.

SIPs or Systematic Investment Plans are a great tool for beating marketing volatility. With SIP, you keep investing a fixed amount no matter where the market is or how volatile it is. You will get fewer units when the markets are peaking new highs and more units when the markets fall. They eliminate the need for you to time the market in any way.In the process, you also get to benefit from the concept of RCA (Rupee Cost Averaging), which enables you to reduce the investment cost and boost your returns.If you are new to mutual funds, SIP can be a smart way to begin your investment journey. If you are already investing through SIP and unable to decide if you should stop due to the volatility, it is highly recommended that you keep investing. In the longer run, SIP is sure to deliver handsome returns if you’ve selected the scheme carefully.

While it is often recommended that you should hold your equity positions through market cycles, it is also essential to know when to exit your investment. Unfortunately, this is easier said than done. When you have zero-idea about how the markets will perform in the future, how will you decide when to exit, hold, or buy more?Let your investment objective make this decision for you. If you’ve already achieved a significant portion of your objective and are not comfortable holding your equity mutual fund investment, redeem the units or move to a different fund category.You can also use the STP (Systematic Transfer Plan) facility to switch to another mutual fund scheme offered by the same fund house. The SWP (Systematic Withdrawal Plan) facility is also very useful if you want to withdraw a pre-defined amount on a monthly basis.

Like most things in the world of investments, it takes some time and experience to get used to the volatility. While it can be very challenging not to let the volatility impact your emotions and mental state, this is what separates amateurs from professionals.Keep learning and stick to your investment strategy as there is no escaping the volatility of the equity markets. If you are unable to make a decision, you can always consider professional assistance as well.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.