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10 Best Funds to Fight Volatility

08 June 2022

A mutual fund is an investment vehicle that pools money from multiple investors into one fund over time. These funds are managed by professional managers who invest the money according to certain rules or guidelines set by their clients.

Mutual funds can be used for many different purposes including retirement planning, college savings accounts, and more.

Mutual fund investments are a great way to get started in the stock market. They offer diversification, professional management, and low costs—all while giving investors the ability to put their money to work in a variety of different companies. But when it comes to investing in mutual funds, there are also some pitfalls that you need to be aware of.

Mutual funds can be quite volatile; if one company or industry makes an unexpected move that impacts the whole sector, this can have a chain reaction across all of its holdings. This is especially true if you have a concentrated portfolio, which means that your assets are spread out over many different companies.

If you're going to invest in mutual funds, make sure that you're prepared for the volatility of mutual funds by choosing an investment strategy that makes sense for your financial goals.

Market Volatility

It is important to realize that the volatility of the markets is as natural as changing of the seasons. Common investors must realize that markets are bound to go up and down. However, what is important to realize is that such change is only temporary or short-lived.

India has a history of volatile markets. In the last 20 years, there have been three major market crashes that have caused investors to lose money. The most recent crash was in 2008 when the market fell by 50%. Investors who had invested at this time lost their entire investment.

To avoid these kinds of losses, investors need to know how mutual funds work, how they are taxed, and how they can be used to protect themselves from market volatility.

Mutual funds are investments that hold a number of different stocks or bonds in order to reduce risk. They do this by diversifying your portfolio so that if one investment goes down, it won't hurt as much as if all your money had been invested in one company or sector.

They also make it easier for investors because they allow them to purchase shares in an entire company rather than having to buy each stock individually and pay commissions on each purchase.

Mutual funds are taxed differently than other investments because they are considered as one entity rather than individual stocks or bonds. When you sell mutual fund shares, you will pay capital gains taxes based on how long you held the shares before selling them (usually long-term capital gains taxes).

Best Low Volatility Mutual Funds

Here are some of the top low volatility mutual funds-

S. No.

Fund Name

Top Balanced Funds

1.

ICICI Prudential Equity & Debt Fund - Direct Plan-Growth

2.

Mirae Asset Hybrid - Equity Fund - Direct Plan-Growth

3.

Kotak Equity Hybrid

4.

Edelweiss Balanced Advantage Fund - Direct Plan-Growth

5.

SBI Equity Hybrid Fund - Direct Plan-Growth

Top Large-Cap Funds

6.

SBI Blue Chip Fund

7.

Mirae Asset India Opportunities Fund

8.

Kotak Bluechip Fund - Direct Plan-Growth

9.

ICICI Prudential Bluechip Fund - Direct Plan-Growth

10.

Canara Robeco Blue Chip Equity Fund - Direct Plan-Growth

Balanced Funds

Balanced funds can be used as a good measure to deal with market volatility. These funds invest in both the debt and equity components of the market, which in turn helps in reducing the volatility of the portfolio. A balanced fund is a fund that combines a stock component, a bond component, and sometimes even a money market component into a single portfolio.

These are also known as hybrid funds. These are preferred by investors looking for a mixture of safety, income, and modest capital appreciation.

These are broad of two types:

  • Equity-oriented Balanced Funds: Major portion of the fund portfolio consists of equities, at least 65%, and the rest in debts. The aim here is to minimize risk on investment
  • Debt-oriented Balanced Funds: Major portion of the fund portfolio consists of debt and the rest in equity. The aim here is to increase return on investment.

Balanced funds provide investors with safety from the market. Recently, a new kind of balanced funds is launched and they are getting huge popularity. They are called balanced advantage funds. The only difference is that they use derivatives to manage the allocation of asset allocation across debt and equity. They also take more flexibility on asset allocation percentages.

Again, it can be easily achieved by using arbitrage funds along with large-cap equity and long-term debt fund. By shifting allocation between equity and debt, the funds can be used according to the situation of the market. At times of market correction, debt becomes more preferable and vice-versa.

Large Cap Funds

Large-cap funds refer to those funds which invest a larger proportion of corpus in companies with large market capitalization. Large-cap companies usually have capital worth 20,000 crores or more.

Since these companies are strong and reputable, they are more stable as an investment alternative. They have the least risk and offer the best returns for that level of risk. Such funds are suitable for investors who have a low-risk appetite and want stable returns.

Those investors who want to deal with this problem of volatility and have a higher risk appetite may opt for large-cap funds. Large-cap funds are a bit riskier than balanced funds, however, the higher risks are compensated by higher returns.

Therefore, those investors who have a long time horizon of 5-7 years and are willing to take higher risks may deal with volatility by investing in large-cap funds.

You may also want to read 8 Strategies to Overcome Market Volatility

Factors and Features To Consider Before Making An Investment

Before investing in a fund with low volatility in India, it is important to consider the following features:

  • Fund's Returns

It is important to understand how well a fund has performed over a period of time in comparison to its peers in order to determine if it is worth investing in. The risk-adjusted returns (Alpha) should be greater than 0% but less than 1%. This means that the fund has performed better than its peers and is less risky than them as well.

  • Portfolio Stability Provided By The Fund

A portfolio should consist of a variety of stocks from different industries so as to decrease volatility and increase diversification benefits. The stability of your portfolio is also important when considering investments, so make sure that the fund you're looking at has a history of stable performance over time.

  • Exposure To Stable Companies

Stocks belonging to stable companies such as banks or real estate companies tend to perform better than volatile stocks over long periods of time. They are also considered safer investments since they are less likely to lose value during economic downturns or recessions compared with other types of stocks.

Best Low Volatility Mutual Funds: Overview

1) ICICI Prudential Equity & Debt Fund - Direct Plan-Growth

ICICI Prudential Equity & Debt Fund Direct-Growth is a Hybrid Mutual Fund Scheme launched by the ICICI Prudential Mutual Fund. This scheme was made available to investors on 12 Oct 1993.

The scheme seeks to generate long-term capital appreciation and current income by investing in a portfolio that is investing in equities and related securities as well as fixed income and money market securities. 

2) Edelweiss Balanced Advantage Fund - Direct Plan-Growth

Edelweiss Balanced Advantage Fund Direct-Growth is a Hybrid Mutual Fund Scheme launched by Edelweiss Mutual Fund. This scheme was made available to investors on 30 Apr 2008. The minimum SIP investment is set to ₹500 and the minimum lump sum investment is ₹5,000.

The scheme will invest in arbitrage opportunities, equity derivative strategies, pure equity investments, and the balance in debt and money market instruments.

3) Mirae Asset India Opportunities Fund

Mirae Asset Large Cap Fund Regular Growth is an Equity Mutual Fund Scheme launched by Mirae Asset Mutual Fund. This scheme was made available to investors on 26 Apr 2019. The primary investment objective of this scheme is to generate long-term capital appreciation by capitalizing on potential investment opportunities through predominantly investing in equities and equity-related securities.

4) SBI Blue Chip Fund - Direct Plan-Growth

SBI Bluechip Fund Growth is an Equity Mutual Fund Scheme launched by SBI Mutual Fund. This scheme was made available to investors on 29 Jun 1987. The primary investment objective of this scheme is to provide investors with opportunities for long-term growth in capital through active management of investments in a diversified basket of equity stocks of companies whose market capitalization is at least equal to or more than the least market capitalized stock of BSE 100 Index.

5) Kotak Bluechip Fund - Direct Plan-Growth

Kotak Bluechip Fund Direct-Growth is an Equity Mutual Fund Scheme launched by Kotak Mahindra Mutual Fund. This scheme was made available to investors on 05 Aug 1994. The scheme seeks to generate capital appreciation from a portfolio of predominantly equity and equity-related securities falling under the category of large Cap companies.

Conclusion

 Low volatility investments are typically defined as funds that have exhibited low-to-moderate fluctuations in their balance over time. As such, they tend to be more stable than other types of investments and can provide you with a steady source of income.

However, before you take the plunge and make an investment in the most volatile mutual funds, make sure to make yourself aware of the funds’ background and performance, which can help you determine whether or not a particular fund is good for your needs.

Disclaimer: The views expressed in this post are that of the author and not those of Groww.

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Research Analyst - Bavadharini KS

Disclaimer

The stocks mentioned in this article are not recommendations. Please conduct your own research and due diligence before investing. Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. NBT do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.
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