Why mutual funds are your best bet in this market unrest

Stock market corrections can be unnerving. A sharp fall in stock prices often triggers panic among investors, making them question whether they should remain invested or exit to avoid further losses. Our answer? Stay put. History shows that mutual funds tend to fare better than the overall stock market during downturns. Not only do they fall less, but they also recover faster. Here's why staying invested through market turmoil is the best strategy for long-term wealth creation. Mutual funds during market corrections We analysed the performance of actively managed mutual funds whenever the Sensex fell over 20 per cent in the past two decades. Across six major market corrections, the majority of funds in key categories—large-cap, mid-cap, small-cap and flexi-cap funds—outperformed their respective benchmarks. This outperformance is largely due to the fund managers' ability to pick resilient stocks, avoid stricken sectors and strategically rotate holdings. How mutual funds perform during market crashes How mutual funds perform during market crashes % of funds that have fallen lesser than their category benchmarks Category FII selling (2006) Global Financial Crisis (2008) Post -Global Financial Crisis (2011) Yuan devaluation (2016) Covid crash (2020) Current market correction* (2024) Large cap 33% 71% 70% 84% 88% 56% Flexi cap 36% 64% 64% 63% 96% 56% Mid cap 83% 71% 100% 50% 91% 41% Small cap 75% 100% 100% 77% 100% 70% (*Current market correction is the only instance in the table where Sensex fell by less than 20 per cent as of 19 February.) The takeaway? Actively managed mutual funds provide a cushion during downturns compared to direct stock investments. Mutual funds recover faster than markets One of the biggest advantages o

This article was originally published on March 05, 2025.