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How can you survive a Volatile Equity Market?

equity_market_volatility

You know who runs Equity Markets? We HUMANS!! And there has to be a specific pattern of human behavior, which makes us take reactive measures when markets go through bull & bear phases. Yes, the patterns are Greed & Fear - The emotions that drive equity markets


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. Source : MoneyControl.

NIFTY 2 YEAR CHART
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. Source : MoneyControl.


NIFTY 18 YEAR CHART
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

Warren Buffett - "I always Buy from Pessimists & Sell to Optimists"

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?

What better time to invest into quality when the market is down, this is when you get quality at a much cheaper price. Once there is a turnaround in the market, you will earn maximum returns. Here's some motivation for you - From Complicated to Committed - My relationship with Investment

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. 
Here's how diversification works in a mutual fund - How to diversify your mutual fund portfolio?

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. 

The best part of investing in Mutual funds is that there is something for each category of investor. Equity mutual funds contain all variants which can cater to different investors risk appetites, tax efficiency, diversification and professional management. ​​​​​​​​​​This will help you understand categories of equity mutual funds - Equity mutual fund categories for your portfolio


SIP

I'm sure you would have heard of the term 'SIP' all across financial articles. SIP stands for 'Systematic Investment Plan'. Yes, you have to be disciplined & systematic in your investment approach in order to achieve your long term wealth creation goal.

You also need to understand that over-hype is for a reason. SIP brings about a discipline in your investing & also provide benefits like cost averaging, flexibility etc. Read here to learn about the SIP magic SIP - The magical recipe for financial success



No one can catch top or the bottom of a particular stock, not even Warren Buffett. Therefore, it is always advisable to accumulate stocks at a specified time interval or based on market conditions. 
Similar is the case with mutual funds - these are long term wealth creation instruments and you need to invest through SIP's & define a long term investment horizon which could be 5,10,20 or 30 years away, based on your goal. For those looking at easiest way of starting an SIP, Read Here - iSIP - The easiest way to invest in Mutual Funds


Mutual funds as an investment instrument has been gaining popularity over the years, thanks to the wide range of options available and the ease of KYC process. To know more about them, check out The Mutual Funds Sahi Hai campaign, launched by The Association of Mutual Funds in India (AMFI) at www.mutualfundssahihai.com

Still have any questions or feedback on the article, don't forget to share it in the comments section below.

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