Equity mutual fund investment in RED? Sure shot tips to protect your capital

Mutual Funds Investment Plans: There is a famous saying -- 'do not put all your eggs in one basket'. This is exactly the same scenario with your equity mutual fund portfolio. When you invest in the equity market or related investment tools, the risk of losing capital is always higher. If things didn't go the right way, you could lose all your capital. But the truth is that high-risk investments also generate handsome returns. Therefore, the golden rule is to 'invest regularly and invest diversified!'

For those willing to invest in the equity market and looking to minimize the risk, mutual funds are always recommended. It is one of the best ways of investment if someone wants to put his/her money in security markets and reap healthy returns.

Take advantage of volatility 

During a downturn market, it becomes crucial to protect your capital passively so that both investment and returns are not affected. Abhishek Dev, co-founder and CEO, Epsilon Money, said that volatility is considered to be a great friend to investors who have a long investment horizon. And for those who invest on a regular basis, such a situation is definitely a win-win.

Regular investments offer the opportunity to add more units to the portfolio when markets are down and therefore, help reduce the average cost of purchase during periodic downtrends.

Abhishek said that it is in the very nature of the markets to be volatile and given how closely India is integrated with the global market, an announcement by the US Fed or the war situation in Ukraine tends to have a ripple effect on Indian markets and economy.

"It is virtually impossible to predict what a market will do next. However, there is a secret sauce to beat the dejection that the downturn in markets brings and also control the euphoria that the upturn may bring. And it is one simple word – diversification," he said.

Go for diversified investment 

Any good financial planner will always recommend that one diversifies their investments into multiple asset classes, equities, fixed income, gold and even foreign securities. The reason for this is simple -- if one asset class performs badly, there are others that perform better and the portfolio stays above the proverbial waterline.

When an investor diversifies his portfolio, it also ensures that he remains invested across asset classes and doesn’t miss out on big up moves in particular asset classes.

"A diversified portfolio, with multiple other asset classes, is better equipped to handle market shocks than having all your hard-earned money invested in one asset class like select equities," he said.

Invest through SIP mode

The golden rule is -- NEVER STOP SIP during falling markets. The SIP method helps in buying more units when the market is down.

When you remain invested via SIP mode in the equity market, it helps to beat volatility. In the long term, an investor generates good returns.

It is worth mentioning here that the equity market has never given negative returns in 10 years.