Equity investing is known to have surpassed return from any other investment asset in the long run. What is to be remembered here is that the nature of the market is such that price fluctuations or volatility is inevitable in the short run. Timing the market is difficult here. However, it’s the element of risk or volatility that increases your chances of getting higher returns from equity investing.

Benefits of investing in the equity market

Inflation eats into your money with time and unless you invest in an asset which is inflation beating, your real return on investment will be negative. A decently-performing mutual fund has fetched anything above 15% return in the last 5-10 years.

The return rate is substantially better than any traditional asset such as fixed deposit, insurance, corporate bonds, and government schemes.

There is a gamut of investment options when it comes to the equity market. Basis your risk appetite and investment goal, you can pick a suitable investment option.

Investing amidst volatility

While watching your portfolio take a hit in the bear market is not easy, remember holding onto an equity investment over the long term is what will help you make money. If you are invested in a promising mutual fund with strong performance records, short-term fluctuations must be overlooked. Such fluctuation will not impact the long-term value of a fund. Volatility is the reason why you get a chance to earn considerable profit. In fact, such times of volatility mark a great time to buy if you believe in the long-term potential of a fund.

Things to keep in mind

Risk management is another important aspect toward managing volatility. Fear often leads to abrupt quitting from an investment. So, rationalising your decision is important. Set a benchmark to the amount you are going to risk in any trade. It could be 2% or 5% of your investment, but stick to it and make an exit only if it hits your risk limit.

Another way to get the better of it is by investing through the SIP mode. An SIP is based on the idea of averaging your investment cost over time. So, you invest a fixed amount every month over a period of time. When the market is low, your NAV is low as well. So the sum you invest gets you more units of the fund. At the time of redemption, all units fetch the same amount of return, essentially helping you make more money through investment at a time when the market is low.

You can follow the same pattern in investment in the stock market. You can invest a fixed amount every month over a long period of time. This long-term discipline can fetch you substantial return over a period of time. Therefore, equity investors should welcome volatility to earn a higher ROI.

Moreover, when investing through mutual funds, you can rely on fund managers who oversee the investments associated with a fund. You do not need to time the market or keep a close eye when it comes to mutual funds. It is the safest way to build wealth over the long run.

(The writer is CEO, BankBazaar.com)