How are you all? We are all aware of the fact that in the last two years, market performance has been much jittery, and it has experienced ups and downs on a large scale. This volatility of the market for the last two years has affected the performance and returns of the Equity mutual funds to a great extent. The dramatic swings in the markets have made the Equity investors question and reconsider their investment strategy. In fact, many of the equity investors, keeping aside their long-term investment motive, decided to sell or redeem their Equity mutual fund schemes.
Well, we already know that market is not consistent, it fluctuates, and in short-term its effects are felt more, so basically, investor who invest in Equity mutual funds, that is for long-term, need to stay calm, through periods of volatility, in fact, they should follow some basic strategies that would help them to get stuck to their long-term investment objective, amidst of the market's volatility. If you are also an equity investor and is unable to handle the effects that market volatility creates, then here are four strategies you can follow so that volatility doesn’t come in the way of your long-term goals.
1. Invest in the best of the economy
Investing in Equity Mutual fund means, investing in the future of the companies, that will grow with the economy. Financial experts advise the investor to invest for long-term objectives, they should diverse their fund, in large-cap and multi-cap mutual funds, as these funds invest in the best companies on the stock market, that not only masters current market, but aims to be the leader in the future too.
Volatility is market nature, and not a parameter to decide the long-term future gains on your investment, so when the market suffers, take a chill-pill and relax, stay invested for long-term. Long-term investment will help you average the effect of market volatility and save your returns from its adverse effects.
2. Assume the asset class return rather than a specific fund’s returns
At the time you plan to invest in an Equity fund, always consider the return rate offered by the asset class and do not focus on the return rate shown by the specific fund you are investing in. In Equity Mutual Fund the returns have been about 12% or slightly more, and this rate should be used to calculate the estimated return, this is so because the rate of return can shift in the future depending on the performance of the national and global economy.
Using the asset class return to calculate your estimated return, helps in the future planning process especially keeping the inflation trends in mind.
3. Treat your equity investment a locked-in investment for a decade at least
Before you start investing in equity mutual funds for your long-term goals, prepare a mindset, that you are going to invest in a fund that comprises a lock-in period of at least 10 years. Never invest in Equity funds, if you can’t continue to invest for a minimum period of seven years, and also don’t invest in Equity funds if you are planning to invest for 2-3 years.
If the fund, you are investing in, underperforms its benchmark continuously for three years or more, you can switch to another fund, but do remember never switch your asset class.
4. Prepare an emergency fund before you invest in Equity Fund
Prepare an emergency fund with four months of income, before you start investing in equity mutual fund, this will prevent you from the notion to redeem your equity funds, to cater the money demand for short-term goals. You can consider investing in liquid funds or short-term debt funds to prepare an emergency fund for your short-term goals or urgent needs.
The above four mentioned strategies should be followed by Equity Mutual Fund investors, this will help them manage and overcome the effects of market volatility on their fund, most Importantly, these strategies would let them remain stuck with long-term investment for their long-term goals, and they can accumulate a good corpus for their future financial goals.
Most importantly, always consult a financial planner or advisor, before starting your investments. They will help you select the best fund, for your investments as per your requirement.
You can also contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).