How To Survive a Volatile Equity Market?

Equity Markets historically, have always been volatile in short term – but can create serious wealth in the longer term. Let’s look at the two year chart for NIFTY 50 as on 17th Oct, 2018.

Nifty 2 Year Chart

Looking at the chart, market has been quite volatile with multiple downturns & upswings. Markets never move in a linear fashion, never ever!! Check 18 years chart, if you still don’t believe.

Volatility is the nature of market. So is it only for the selected few? Not exactly, everyone can generate healthy returns. Here are the few ways which could help the investors survive the market.

Long Term Investment Horizon

The equity market trend suggests it is neither a fixed income instrument, nor remains down throughout the life cycle. During the year 2017, markets were in a serious upswing, which lead many investors to pour their savings into equities through mutual funds.

But when markets started getting volatile, many of the new investors bailed out. Check AMFI mutual fund inflows MoM figures – AMFI Monthly, which clearly suggests a downtrend when markets move downward.Investors failed to realize equity does generate value, but only when it is held for long term. Equity no doubt is a risky investment option, the only way to mitigate the risk is to ensure you’re giving enough time to your investments. Let’s look at the 18 year chart for NIFTY.

Nifty 18 Year Chart

Doesn’t it showcase a constant upward path? Yes, there have been few severe downturns, which has taken few months or years to recover – but market has it’s own way to catch up. This is the reason why you should invest into quality stocks & stay put for long term to enjoy heavy profits.

Invest When Market is Down

If you get this right, half of your job is done. We understand you want to invest into quality businesses, but the most important aspect is the investment price. You wouldn’t want to invest at a price which is 5-10 years ahead of the growth prospects, Right?

Portfolio Diversification

“Never put all your eggs in one basket”. Ever heard of this? Yes, this holds true for equity investments as well. You can de-risk your portfolio by investing into multiple quality stocks or mutual funds. Specific to mutual funds, it is very important to understand your risk profile & then choose a mix of large, mid & small cap funds. It is always good to have a portion of your portfolio into debt or liquid funds.

The performance across sectors & stocks varies with time, which is why it is important to diversify across different industries & themes. Another very important aspect is to not over diversify – which can sometimes impact your portfolio adversely.

Equity Mutual Funds

Not all have in depth knowledge & expertise to manage the portfolio. You need to understand there are market specialist fund managers, who can manage it for you through Mutual Funds.

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