Mutual funds have emerged as one of the most popular investment options among Indian investors. The main advantage of mutual funds is that you can start investing in them with as little as Rs 500 per month and build a corpus for your future. Over the long term, it is often seen that mutual funds can deliver inflation-beating returns to investors.

However, it is also true that mutual fund returns are not guaranteed. You must have heard the disclaimer, ‘Mutual fund investments are subject to market risks. It means that any fluctuations in the stock markets impact the current Net Asset Values (NAVs) of mutual funds.

Typically, when the markets fall, some investors feel the urge to sell their mutual funds, while some see it as an opportunity to buy more funds. In this article, we will tell you what strategy you should adopt. Should you sell your mutual funds or buy more units when the markets go down? Let’s find out.

Look at Your Investment Goals

Every time the markets go down, you need to remember your investment goals. Goal-based investing is very crucial while dealing with mutual funds. If you have invested in a long-term plan, don’t panic. Stay invested, and you will get your returns in the long term.

You need to understand that mutual funds are not magic funds. You will not reach your goals unless you’re prepared to stay invested in them for an extended period.

Choose Your Mutual Funds Wisely

Not everyone has the same risk-taking capability. It’s crucial to determine your risk appetite and choose your mutual funds accordingly. If you’re an aggressive investor who can tolerate market fluctuations, go for equity mutual funds. Even financial experts recommend investing in equity mutual funds for building a long-term corpus.

However, equity mutual funds are prone to market risks, so their NAVs can go up and down during the volatile market. Adding more funds during the falling market can be a helpful strategy if you’re investing in equity funds for a long-term goal.

Otherwise, you can opt for debt mutual funds. Due to market fluctuations, these funds are less risky and do not get affected.

Understand the Reason Behind the Fall

Before you decide to buy more funds during a market fall, it’s crucial to understand the reason behind that fall. Most of the time, markets fall due to temporary reasons and rise again after a short period. So, buying during these ‘dips’ is recommended.

However, if the reason is primary, the market can keep falling for an extended period. Avoid buying more funds during such times.

Why a SIP is an Ideal Choice

You would have seen that it’s pretty difficult to time the market. One cannot tell if a fall is temporary or permanent. So, the best way to invest in mutual funds is through a Systematic Investment Plan (SIP). You can start a SIP to invest fixed amounts at regular intervals without worrying about market timing.

Conclusion

You will buy more units when the markets are down and vice versa. Ultimately, you will earn the benefits of rupee cost averaging. Once you have a SIP in place, you can focus on your day-to-day work and let your investments grow behind your back.

Do not worry about market volatility; continue to focus on your long-term goals. Have faith in your mutual fund managers and start a SIP for more profitable returns. Why not download the Tata Capital Moneyfy app today and gain more insights into mutual funds and SIPs?