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Market volatility and its impact on equity mutual funds

equity fund in volatile market
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In the dynamic world of finance, where opportunities and uncertainties are interconnected, market volatility is a prominent factor that influences investment outcomes. For individuals in pursuit of wealth generation, understanding the relation between market fluctuations and equity mutual funds is paramount.

In this article, we will take you through the impact of market volatility on equity mutual funds. We will also discuss the details, tactics, and a few tips that can help investors withstand the ever-shifting trends of the financial markets.

  • Table of contents
  1. What is volatility in mutual funds?
  2. Market volatility and mutual funds
  3. Equity funds in a volatile market
  4. Strategies for withstanding volatility
  5. Bajaj Finserv AMC
  6. FAQ

What is volatility in mutual funds?

Volatility, within the context of mutual funds, indicates the magnitude and frequency of price oscillations in the underlying assets. It serves as a quantitative measure of the degree to which the value of assets experiences fluctuations over a specific period.

While volatility might evoke feelings of fear, it is imperative to recognise that it is an intrinsic facet of any market ecosystem and extends beyond the confines of mutual funds.

Therefore, rather than being a cause for alarm, volatility represents the market's inherent unpredictability and embodies the rapidity with which prices can surge or fall.

Market volatility and mutual funds

The relationship between market volatility and equity mutual funds shapes the trajectory of an investment’s performance. Equity mutual funds comprise the stocks of diverse companies and their returns depend on the performance of these stocks. In periods marked by increased market volatility, the intrinsic value of individual stocks undergoes frequent oscillations, thus affecting the overall value of the mutual fund.

However, in the midst of heightened volatility, the human element often comes into play. Investors, driven by the emotional currents of fear and uncertainty, might be inclined to undertake impulsive actions, such as panic selling of their mutual fund holdings.

Yet, it is imperative to recognise that such hasty responses might not necessarily align with the principles of astute long-term wealth generation.

Equity funds in a volatile market

Equity mutual funds are inherently more susceptible to market volatility due to their substantial exposure to stocks. While this heightened exposure amplifies equity funds’ potential for relatively reasonable returns, it simultaneously ushers in an elevated degree of risk.

When the market is volatile the valuation of the underlying stocks undergoes oscillations, leading to equivalent fluctuations in the net asset value (NAV) of the equity mutual fund.

For equity fund investors, a strategic mindset is an indispensable asset in the face of market volatility. Rather than succumbing to the currents of fear, an investor's decision to remain steadfast and invested despite the declines and flows of the market can yield to good outcomes over an extended time horizon.

Moreover, history bears testament to the resilience of the markets, showcasing their capacity to rebound from downturns and ultimately rewarding those who champion a stance of patient resolve.

Strategies for withstanding volatility

Diversification: A judicious strategy to mitigate market volatility revolves around diversification. Equity mutual funds that meticulously distribute investments across an array of industries and sectors tend to be less influenced by the suboptimal performance of an individual stock or sector. This strategic dispersion acts as a buffer, minimising the impact of adverse market movements.

Systematic investment plans (SIPs): SIPs inculcate a disciplined approach to investments, permitting individuals to allocate a fixed sum at regular intervals. This calculated method facilitates the gradual averaging out of the investment cost and minimises the impact of market volatility. In essence, during market troughs, the investor procures more units, and conversely, during market peaks, fewer units are acquired.

Long-term focus : Adhering to a long-term perspective is a tried and tested way of making the most of equity funds in volatile markets. Transient market fluctuations should not have undue influence over investment decisions, especially when the overarching goal is wealth generation. Investors should always remember that equity mutual funds are designed to foster sustained growth over an extended span of time.


When aiming to create wealth using mutual funds over time, there is no getting away from the ups and downs of the market. Understanding the link between market changes and the impact of market volatility on equity mutual funds is essential for making smart investment decisions. While market instability might create uncertainty, it also provides opportunities for those who use strong and steady investment approaches. However, as you start your journey to build wealth, it's crucial to take advice from financial experts. They can provide tailored insights based on your financial goals and risk tolerance. By combining careful thinking with practical steps, you can potentially withstand unpredictable market shifts and work towards your goal of creating wealth over long term.

Bajaj Finserv AMC

Bajaj Finserv AMC has launched schemes including a flexi-cap fund, liquid fund, arbitrage fund, overnight fund, and money market fund. Each of these investment options provides professional management and return potential of the invested amount. However, it is important for investors to assess their investment objectives, risk tolerance, and consult a financial advisor before making any mutual fund investments.


How does market volatility affect equity mutual funds?
Volatility can lead to fluctuating fund NAVs, impacting short-term returns but often lessening its effect on long-term investments.

Are there strategies to navigate volatile markets?
Diversification, SIPs, and maintaining a long-term perspective can help investors mitigate the impact of market fluctuations.

What's the role of fund managers during market volatility?
Skilled fund managers adjust portfolios to align with market conditions and aim to mitigate impact on capital invested.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.