Navigating Market Volatility: Why Time in the Market Is Better Than Timing the Market

Those who have invested with irrational exuberance at the peak have been left drenched in the bloodbath and double-digit negative returns. Even those who invested at the beginning of FY25 have faced disappointment.

[Read: Global Investing Amid Market Volatility: Should You Diversify Now?]

As you can see, India's Volatility Index or VIX - a measure of volatility - spiked soon after U.S. President Donald Trump's victory. His protectionist policies and tariff tantrums, sparking concerns of a global trade war, are a key reason behind the current volatile environment.

Other factors contributing to the equity market volatility include persistent geopolitical uncertainties, rising crude oil prices, a weakening rupee against the greenback, the possibility of an economic slowdown, a weakening rupee against the greenback, the risk to the inflation trajectory, and the chances of U.S. Federal Reserve refraining from reducing interest rate much. Foreign investors dumping Indian equities is also weighing down the market.

[Read: Does It Make Sense to Invest in U.S. Equity Funds Amid Market Volatility?]

Given the global and domestic headwinds at play, CY2025 is shaping up to be an eventful and volatile year, and further drawdowns cannot be ruled out.

Against this backdrop, it is natural for panic to set in, leaving many investors wondering whether to discontinue or stop their existing mutual fund SIPs (Systematic Investment Plans).

However, you have to understand that panicking is futile as volatility is inherent to equity markets and cannot be avoided. One of the worst mistakes investors can make is pausing/discontinuing SIPs during a market downturn with plans to restart during the recovery phase.

Doing so involves attempting to time the market, a notoriously difficult feat that could prove hazardous to both the wealth and health of investors.

You see, markets never move linearly; they go through cycles of peaks and troughs, making it impossible to determine where the bottom would be.

Rather than timing the market, it is important to focus on 'time in the market'. A longer investment horizon - of at least 5 years shall help mitigate the risk with the inherent rupee cost averaging feature of SIPs and potentially add to the power of compounding.

The best-performing days in the market often come directly after significant declines, meaning those who stay invested can benefit from the potential gains. The history of the Indian equity market stands testimony to this.

Over the years, the market has navigated various setbacks, including the Harshad Mehta scam (in April 1992), the dot com bubble burst (in March 2000), the Ketan Parekh scam (in March 2001), the great financial crisis of 2008, the Dubai debacle of 2009 (due to global financial crisis), the European debt crisis of 2009-14 (affecting Portugal, Italy, Ireland, Greece, and Spain), the COVID-19 pandemic, Russia invasion of Ukraine, military conflict in parts of Middle East after Hama's attack on Israel in October 2023, and many more.

Yet, despite these challenges, the market has consistently scaled high returns over the long term and has generated wealth for investors.

This resilience is due to India's strong economy (at the fifth spot in nominal GDP terms) and its status as the fastest-growing major economy and "a bright spot".

So, it is important to stay put and continue SIP-ping in the best and most suitable equity mutual funds, aptly prioritising time in the market.

If the equity market declines further for whatever reason, rupee-cost averaging would work to your, the investor's, advantage. More units will be purchased at lower NAVs, setting the stage for compounded growth when the market begins to ascend again.

Even if the equity market continues to consolidate further or sinks by some percentage points, don't get discouraged or discontinue your SIPs.

The Association of Mutual Funds in India (AMFI) data for February 2025 reveals that SIP contributions have marginally declined in the first two months of CY25, highlighting the anxiety of investors.

However, as seen in Graph 2, flows into SIP have witnessed a 35.51% on-year rise in February 2025.

Consequently, the overall SIP AUM stands at Rs 12.38 crore, reflecting a 17.60% on-year increase, and accounts for 19.20% of the overall AUM of the mutual fund industry, as of February 2025.

[Read: What Equity MF Inflows and SIP Contributions for February 2025 Say About Investors]

This data highlights the investors' growing resilience and commitment towards long-term wealth creation despite market volatility.

How to Invest in Equity Mutual Funds Now?

It would be prudent to follow the core and satellite approach, a time-tested and sensible investment strategy ensued by some of the most successful equity investors around the world.

The core portion (65%-70%) of your equity mutual fund portfolio should mainly comprise some of the best Large Cap Funds, Flexi Cap Funds, and Value/Contra Funds for stability as you endeavour to create long-term wealth.

The satellite portion (up to 30%-35%) may include a couple of best Mid Cap Funds (max 2) and an Aggressive Hybrid Fund.

If you are already holding some of the best Mid Cap Funds in your satellite portfolio, avoid making fresh investments now.

Steer clear of Small Cap Funds at this juncture unless you're a very aggressive investor with a stomach for very high risk, strong knowledge of these funds, and an investment horizon of over 8 years.

A Multi Asset Allocation Fund could also be a meaningful choice for a tactical allocation to equity, debt, and gold.

The satellite portion of the equity mutual could push up your overall portfolio returns. However, an investment horizon of around 7 to 8 years is necessary for the satellite holdings to ride out short-term market volatility.

Why Is a Mutual Fund Portfolio Review Essential in the Current Volatile Market?

Reviewing your mutual fund portfolio would help you evaluate whether your current asset allocation aligns with your envisioned financial goal/s and risk tolerance.

If the market downturn has made you more risk-averse or your mid and small-cap holdings have underperformed significantly, you may want to rebalance by shifting some investments towards more stable assets like large-caps.

You may also find that a fund that suited your goals five years ago is no longer relevant today. A mutual fund portfolio review would help ensure that your investments remain in sync with your financial objectives, be it wealth creation, retirement planning, or buying a home.

You can also assess whether your portfolio is well-diversified across different asset classes, such as equities, bonds, and other investment avenues.

To Conclude...

While market volatility can be unsettling, do not make the mistake of pausing/discontinuing SIPs. It could put brakes on the power of compounding, getting in the way of achieving your envisioned goals.

Ensure that your mutual fund portfolio is in line with your personal risk profile, your investment objective, the financial goal/s you are addressing, and the time in hand to achieve those goals.

Be thoughtful in your approach.

Happy investing!

We are on Telegram! Join thousands of like-minded investors and our editors right now.

MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.
 

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.