Shield Yourself from Market Volatility

The stock market has been fluctuating wildly in the last few weeks, and most investors are not sure how to react to the situation. Though there has been a recovery in market indices, sharp corrections have already done a fair bit of damage, causing agony for many investors.

While such events can influence our decision-making process, we must remember that markets constantly fluctuate, and volatility is an essential feature of equity investing. That said, there are a few things you can do to shield yourself from market volatility and ensure that you are safe from such downturns.

Here’s a quick round-up of these safety precautions that can protect you from market ups and downs.

Diversify your portfolio with Mutual Funds:

Investing in equity and equity-based assets is a great way to beat inflation. However, putting all your eggs in one basket is never a good idea. Therefore, you should maintain a mix of different assets in your investment portfolio. This will help protect your investments during times of uncertainty.

With a diversified mix of stocks, you can cushion the impact of volatility. Since most of us are ill-equipped to handle a large portfolio directly, an actively managed equity mutual fund is an ideal option. Investing in debt instruments is also a good idea as they generate fixed returns, no matter the market sentiment.

Think long term:

Once you are clear that you are in the equity markets for the long haul, you don’t need to worry much about the short-term fluctuations. If we go by historical data, having a holding period in excess of 5 years can help you tide over market corrections.

For instance, if you were to invest in the BSE Sensex over the last 42 years and hold your investments for a period of 1 year only, you would have lost money 14 times. That’s a loss probability of 33%. If you increase your holding from 1 year to 3 years, the probability of loss reduces to 17.5%. And for a holding period of 5 years, the probability of loss reduces to 7.9%. So, as you can see, staying invested for the long run helps protect investments.

Start your SIPs and stick with them:

An SIP spreads your investment instalments across the ups and downs of a market cycle. This ensures that you get more units when the market is falling and prices are low, and fewer units when market spikes and prices are high. This allows you to average-out the cost of your investment. It also protects your investment from market volatility and price fluctuations.

You don’t have to react

Another vital aspect to investing amid volatility is to possess the right temperament. Here are some tips to deal with volatility in a calm, composed manner:

  • Do not check the portfolio every day as it might lead you to react with unnecessary actions that could be detrimental to the portfolio.

  • When markets are volatile, keep your emotions in check and think rationally before making an investment decision. 

It is not easy to time the market, and you cannot control market forces. Therefore, it is important to stick to your investment plan, manage your temperament and be prepared to hold on to your investments amid volatile markets.

While market volatility is always something to think about, great investment opportunities keep appearing as well. Invest with Mutual Funds through Investment Services Account and you can take advantage of these opportunities when you see them. Just login through your NetBanking, go to the Mutual Funds options, click on request, and open Mutual Funds ISA Account.

Click here to open your ISA today!

Did you know you can also have a cheat day when it comes to investing? Click here to read more!

*Terms and conditions apply. HDFC Bank is an AMFI Registered Mutual Fund Distributor. Mutual Fund investments are subject to market risks, read all scheme related documents carefully.