Market volatility: To stay put or to exit the market | Value Research Is the market volatility giving you jitters? Read on to understand when you should redeem your investments and how you can deal with the market crash.

To stay put or to exit

Is the market volatility giving you jitters? Here is some assurance.

The inherent nature of the market is volatility. The past few weeks have been unnerving for several investors as the markets have witnessed a turmoil owing to macroeconomic conditions such as rising inflation, tightening monetary policy and Russia-Ukraine war. Consequently, the returns of equity-oriented mutual funds have come down across categories causing jitters in investors.

However, it may not be a good idea to redeem your investments at this point in time. It would only make your losses permanent. Many investors had exited equities out of panic when the markets crashed in 2020 due to COVID, making their losses permanent. But those who stayed invested did not only recover the losses but also made higher profits in 2021 when the markets recovered and went on a continuous bull-run.

You should look to redeem your investment only under certain conditions. Firstly, when you have achieved your goal. Secondly, if your fund has been underperforming as compared to category peers. If you don't need your money currently then stay put. Remember why you started investing in the first place. Understand your investment goal and the time horizon of investment. The equity market can be really volatile if looked at for a short period of time. Hence, you should invest in equity only if you have a minimum of five years of investment horizon.

If you are an investor who is easily worried by the ups and downs of the market, then it would be advisable that you invest in aggressive hybrid funds. These funds are mandated to invest about 65-80 per cent of their assets in equity while rest in debt. The equity portion of these funds helps in generating higher returns for investors while the debt component provides a cushion in case the market falls providing phycological comfort to investors.

To stay put or to exit

Moreover, remember not to put all your eggs in one basket. Diversify your portfolio across funds and asset classes. Determine an asset allocation plan for yourself based on your risk appetite and goals and rebalance your portfolio at regular intervals to stick to it. For instance, you can decide to keep 80 per cent of your portfolio in equity and rest in debt. Rebalance your portfolio every year to stick to this allocation plan.

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