Market Volatility: What should investors do now to take advantage of fluctuations?

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March 1, 2021 5:48 PM

Apart from the short-term risks, the fluctuations also provide an opportunity for the investors to invest in low markets and book quick profits when the markets are high.

market volatility, stock market fluctuations, market risks, opportunity of investing in equity, how to take advantage of fluctuations, investment in individual stocks, intra-day trading, long-term investment, mutual fund, MF, SIP, asset allocationPredicting stock market fluctuations is not a child's play and it needs deep studies and long experience apart from free time to track market movements.

Apart from the intra-day volatility, the stock markets are fluctuating by a few thousand points more than once in almost every month. Apart from the short-term risks, the fluctuations also provide an opportunity for the investors to invest in low markets and book quick profits when the markets are high.

However, predicting stock market fluctuations is not a child’s play and it needs deep studies and long experience apart from free time to track market movements.

“Investors have to be wary of fluctuating market conditions. Investors who trade on a daily basis are used to the daily fluctuations and can mitigate their risks through various mechanisms. Investors should be aware of the market conditions, including new policies, global trends and overall trade volumes. It is important that investors look at stocks which are liquid and less volatile,” said S Ravi, former chairman of BSE & Managing Partner of Ravi Rajan & Co.

But for the investors, who don’t have enough time to track the markets, timing the entry and exit is next to impossible.

“This market is certainly not for investors who do not closely follow the market on a daily basis. Such investors must look at a long-term horizon. Every investor must also look at their leverages trading with borrowed funds can be an expensive proposition especially in the market which is choppy. The key strategy in such fluctuating markets is to follow the market closely, trading in liquid stocks with own funds. It is imperative to stay away from penny stocks,” said Ravi.

Mutual Fund Investment: Should you do asset allocation yourself or opt for hybrid funds?

So, to take advantage of market fluctuations, it’s better for investors to do the following:

Mutual Fund SIP

Mutual Fund (MF) is a better way for investors – who don’t have time, expertise and experience to track the markets on a continuous basis – to enter the equity market. This is because, the investors get the services of professional fund managers, who invest in stocks in the best possible way, and their investments get diversified automatically, as MF portfolios have a number of stocks. Moreover, investors may invest in small amounts to get a number of stocks in portfolios through MFs, while acquiring the individual stocks needs large investments.

Moreover, it’s better to invest in equity-oriented MF schemes through systematic investment plan (SIP), instead of timing the market. As the same amount of money is invested on a particular day every month, investments are made both in the high and low market. When the market is up, the value of investment will be high, but when the market is low, SIP will fetch more units.

Asset Allocation

To maximise the gain it’s even better to do the asset allocation in equity and debt as per your requirement and risk taking capacity. Under this a fixed ratio of equity and debt will be maintained. In case the equity markets go up, the portion of equity will become higher and to bring it to the pre-decided level, you have to move some part of money from equity to debt, resulting in booking profit in a high market.

On the other hand, when equity markets go down, the equity portion will become lower, and to rebalance the portfolio to regain the pre-decided debt-equity ratio, you have to move some money from debt to equity, resulting in investments in equity in a low market.

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