Should you invest in mutual funds when the stock market is volatile?

The stock market is unpredictable and investors feel a sense of complexity and uncertainty while investing in mutual funds. Although many investors are aware of the mutual funds and the type of mutual funds they are investing via SIP route, they are still unaware of the timing of the market. Considering the current situation of the stock market, mutual fund investors are faced with a tough time whenever the market tumbles, which often leads to discontinuation of the SIP. Many investors do not know the fact that they can generate better returns being invested in the bearish phase of the stock market.

Should you sell the mutual funds when the market is down?

Selling your mutual funds in a volatile market is not the way out. In fact, you should invest more in a volatile stock market and gain more units of the mutual fund, that can generate better returns in the long-term. Do remember that mutual fund investments are made for long-term and few ups and downs are part of the game. So, during the bearish phase, you should stay invested and invest more monies to generate better returns.

Here’s what the investors should do:

Do not time the market

It is impossible to time the market on a particular day. When the stock market crashes, the NAV of the mutual funds falls and creates a panic situation among the investors. This behavior, in turn, leads to the redemption of the units or stopping the SIPs. Volatility is part of the stock market. There is no strategy that investors can follow to reap the gains from a mutual fund. As you cannot time the market, it is always suggested to keep investing in the market. In fact, lower the market, better the returns that the investor will get in future.

Lower NAV

Mutual funds follow the method of rupee cost averaging. The NAV declines when the market is crashed or vice-versa. During such a situation, the investor will get more units, eyeing for the long-term. However, you should ensure that the mutual funds are giving better returns compared to its peers.

SIP route

There are two means by which an investor can invest in mutual funds i.e. SIP and lump sum. Ideally, for a long-term investor, SIP route is better than the lump sum when the markets are volatile. So, when the markets fall, the investors purchase more units of the mutual fund, and fewer units when the market rises. Thus, this averages out the purchase cost of the mutual fund. Also, you do not need to time the market as you will benefit from both the ups and down.

Also, you need to worry about the market while investing via SIP as the NAV will average in the long-term, thus giving better returns compared to a lump sum.

Do not stop the SIPs

Investors make a wrong choice by stopping their SIP and redeeming the units. Whenever the market crashes, the investor will face heavy losses if the units are redeemed. It is important to note that investing in a small amount for long-term is the best way to maximize wealth.

Choose the right MF

The investor should know the type of mutual funds prior to investing. A wrong investment can lead to heavy losses. It is necessary to analyze the fund performance and make an informed decision while investing in the same. Take advice from an advisor who can advice right type of fund depending upon the risk appetite and time horizon.

Invest for long-term

It is always better to invest in mutual funds for long-term to reap the maximum benefit. Thus, in a volatile market, the smart investors stay invested and invest more to take advantage of downfall.