Which Mutual Fund to Choose During a Market Downturn?
By Akhil Chugh
Date March 02, 2025
The Indian stock market has been experiencing significant volatility, with the NSE Nifty 50 index witnessing its longest losing streak since 1996, resulting in a 15% decline from its September peak and a $1 trillion loss in investor wealth.
This turbulence is attributed to factors such as weak corporate earnings, persistent foreign outflows, and global economic uncertainties. In response, investors are seeking resilient investment avenues to navigate these challenging times.
Best Mutual Fund Categories During Downturns:
1. Balanced Advantage Funds (BAFs)
- Why choose them? They dynamically shift between equities and debt to reduce risk.
- Best for: Investors seeking flexibility and moderate risk with downside protection.
2. Large-Cap Funds
- Why choose them? These invest in established companies that withstand downturns better.
- Best for: Conservative investors with a 5+ year horizon who prioritize stability.
3. Flexi-Cap Funds
- Why choose them? They provide diversification across market capitalizations, adjusting to opportunities.
- Best for: Investors with a long-term focus who can tolerate some volatility.
4. Equity Savings Funds
- Why choose them? They balance equity exposure with fixed-income investments for reduced volatility.
- Best for: Moderate-risk investors looking for stable returns over 3-5 years.
Investment Strategies During Market Volatility
1. Continue SIPs (Systematic Investment Plans):
Regular investments help average out costs and accumulate more units during market lows. SIPs help mitigate the impact of short-term market volatility and reduce the emotional impulse to time the market, fostering disciplined investing.
2. Maintain Asset Allocation:
Rebalancing portfolios ensures alignment with long-term financial goals.
3. Avoid Market Timing:
Predicting market movements is difficult; staying invested is often the best strategy.
Net Brokers Takeaways:
Navigating market downturns requires a strategic and composed approach. Balanced Advantage Funds offer dynamic asset allocation to adapt to changing market conditions, while Large-Cap Funds provide stability through investments in well-established companies. Flexi-Cap and Equity Savings Funds provide a blend of growth and risk management.
Selecting the right mutual fund during downturns depends on risk appetite and investment horizon.
By diversifying across these avenues, investors can better manage risk and position themselves for long-term financial growth, even amidst market volatility.
Pro-Tip: During market downturns, consider increasing investments in a staggered manner instead of making lump-sum purchases. This approach, known as staggered investing, helps you take advantage of lower prices while spreading risk over time.
Stay Invested, Stay Disciplined!
Do you have questions about SIP investments in Mutual Funds? Feel free to get in touch with us.
Stay Invested, Stay Disciplined!