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Market volatility: Should you exit or stick to your equity scheme?

Small cap mutual fund category is the worst hit, with category average returns declining by ten percent in year-to-date. Mid cap funds have seen a fall of over seven percent, while large cap funds have seen a decline of five percent.

June 02, 2022 / 07:17 AM IST

Stock markets have remained volatile in current calendar year. Both the market benchmark indices – S&P BSE SENSEX and CNX NSE NIFTY – have corrected over eight percent in the last two months.

For year-to-date, the S&P BSE SENSEX and CNX NSE NIFTY indices have corrected seven percent each.

Broader market indices S&P BSE Midcap and S&P BSE Smallcap have corrected 9 percent and 11 percent, respectively, in last two months.

The correction in stock markets has impacted equity scheme returns. Among the diversified mutual funds, the small cap fund category is the worst hit, with category average returns declining by ten percent in year-to-date period. The mid cap fund category has seen a fall of over seven percent, while large cap fund category has seen returns declining by five percent.

So far, the returns for mutual fund investors have been nothing like last year, when all these three category gave returns in the range of 24 percent-63 percent. The level of market volatility can be gauged from the fact that India VIX (India Volatility Index) has surged more than 28 percent in year-to-date.


Stock markets are expected to remain volatile in the coming days amid rising interest rates, inflationary pressures and risk-aversion shown by foreign institutional investors (over Rs 1.68 lakh crore net sold by FIIs in May). Here is how mutual fund investors can navigate through this volatile phase of stock markets.


Heightened market volatility can be an opportunity to re-balance your portfolio. For example, if your equity-debt allocation has shifted from 60:40 to 50:50, you can move the excess ten percent from debt to equity to revert to your original allocation.

“By doing this, you get the advantage of investing in equity when the market is at lower levels,” says Mahesh Mirpuri, a mutual fund distributor.

You can either set a specific interval to review your portfolio and then re-balance the portfolio if needed, or if the asset allocation has shifted by a wide margin from your original allocation, you can decide to re-balance earlier.

Rushabh Desai, Founder of Rupee With Rushabh Investment Services, says that it is important that the fresh equity investment is made with a long-term investment horizon in mind.

“While markets have corrected, there can still be more volatility. So, instead of putting all the fresh investments at one go, investors can put it in a staggered manner over three-six months,” he adds.

You can top-up your systematic investment plans for this or even use your funds lying in systematic transfer plan-linked scheme.

“If you have some funds left in your STP-linked scheme, you can take out larger amounts from this source scheme and increase investments in target scheme when there is more market correction,” says Amol Joshi, founder of Plan Rupee Investment Services.

Stay put if goals still far away

If your financial goals are still far away, you should avoid redeeming your equity investments.

“Market volatility can created sharp fluctuations in your investments in the short-term, but the volatility tends to even out over the long-term if you can stay invested. For long-term goals, equity is an ideal investment as it has the potential to deliver high returns,” says Ravi Kumar TV, founder of Gaining Ground Investment Services.

On the other hand, if you are almost near your financial goals, you can take some money off the table and move the funds to lesser volatile instruments.

“It is advisable to start moving goal-linked investments to debt gradually, preferably two years before the life goal approaches, to ensure that the investments are completely shifted to low volatile investments before the life goal,” says Mirpuri.

So, continue with your equity investments in diversified equity funds unless you are close to your goals and avoid over-exposure to sector or theme-based equity funds, which can go through even sharper bouts of volatility.
Jash Kriplani is a journalist with over ten years of experience. Based in Mumbai. Covering mutual funds, personal finance. His last stint was with Business Standard, where he covered mutual funds and other developments in the financial markets
first published: Jun 2, 2022 07:17 am
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