The best place to invest during market volatilities

24 March 2022
The best place to invest during market volatilities

As the Russia-Ukraine conflict ensues, many investors are now looking for safe assets to offset the huge market fluctuations and dips we are witnessing.

The world has seen many geopolitical tensions- war, famine, and economic crises. In times of uncertainty, markets tend to go haywire, making equity investors question - which is the right asset for me?

Should you pull out of the markets till they stabilize? Or should you divert attention to non-market-related assets like gold or crypto? Should you stay in the markets through mutual funds, or should you simply ignore your portfolios and hope for the best?

If any of these questions have been playing on your mind, there might be an easier way to stay invested in equities through index funds and ETFs.

If you are interested in growing your money for the long game in equities, but are taking on risk way above your comfort, then we think it is not really fair to position active funds over passive or vice versa purely because they represent entirely different fund management strategies. If anything, the emergence of passive funds is a sign of a maturing investment market in India.

Passive funds

Passive funds are undeniably a great and cost-effective investment strategy to pursue. They simply mirror indices and require minimal rebalancing and management.

With a lot of AMCs providing great options for investing in large and midcap equities, passive funds are the way to go. Passive funds such as index funds and ETFs, tend to outperform their active counterparts in the long run, in these segments, due to lower costs.

Take the case of large-cap stocks, for example. With a rise in structural/regulatory changes like tighter investment mandates and scrutiny around benchmarks, we have increasingly seen the alpha of large-cap funds dipping (although not for all). So, for this category, passive becomes a relevant choice since your aim then is to save cost and ride on the beta, in case the alpha generated isn’t justifying the expenses you are paying.

Active funds

On the other hand, assign active funds mostly to your mid and small-cap investment.They are relatively less mature and still have a lot of scope for active strategies.

Our take

Diversifying and bifurcating your investment options in such a way offsets the risk and instability your portfolios are subject to, especially during volatile and unpredictable market conditions. It’s not a choice between active funds or passive funds ⁠— you should have the right mix of both in your portfolio. It is better to have a combination of both funds in your portfolio as one will fetch you higher returns than market and the other may give you relatively lower but stable returns.