5 types of mutual funds to know about in a volatile market

Volatility in the stock and debt markets is here to stay for some more time. As the Indian economy integrates even more with the global set up, it will be subject to twists and turns, crests and troughs. In the last few years, investors had been putting their monies in various instruments such as debt, equity, gilt, corporate bonds, bullion etc but volatility has hit their returns significantly. So, the question remains- which are those instruments that perform even during volatility? This article answers this question and presents 5 different types of mutual funds that should perform even during volatility.

1. Value Funds- Many stocks are undervalued by the market due to various reasons. These can be related to bad media reports, insufficient research or plain laziness of the stock market researchers. Value Funds put focus on these undervalued stocks and invest a part of their corpus in these. When there is a downturn in the markets, these funds typically outperform others because the expectations from these funds are lower.

However, it is better to invest considerable time and energy while researching on these funds. If you are going to put your money in these undervalued stocks, then it is better to study in detail the business operations of the corresponding companies.

2. Hybrid or Dynamic Asset Allocation Funds- When the market is volatile, then one of the best mutual fund types to invest in is the Dynamic Asset Allocation Fund. Here, assets are allocated between debt and equity instruments in such a way that returns are maximized while keeping track of growth. Also called as hybrid funds, these are heavily loaded in the favour of debt instruments. You may get higher returns from the debt portion of these funds but remember that there is a risk attached to every fund.

Many Asset Management Funds offer Monthly Income Funds that comprise 85-90{81c2d2eb41f18132b52aecddaa27b789890bad8e76b819914bee3ff3e6bdcc23} debt instruments and the rest in equity. The debt part takes care of returns while the stock part is meant for income. Before investing in such plans, investors are advised to find out if the AMF indeed is promising monthly income.

3. Ultra Short Term Funds- Also called as Cash and Treasury Management Funds, these have a window period of 9-12 months. Perfect for those investors who don’t mind taking a little bit of risk, these funds can give them very handsome returns in just 1-3 months. Another name of these funds is Liquid Plus as these instruments can be cashed within a very short period. In these funds, a large part of the corpus is invested in debt instruments while the remainder goes to large caps.

4. Corporate Bond Funds- You can take part in these funds and ride ahead of the market volatility. In these bonds, investors park their monies with a company or companies who later uses this corpus to settle debt or raise capital. These mutual funds can get you good returns in times of volatility. However, it is wise to choose those companies that have a good reputation in the markets. You can check their reputation and creditworthiness by studying reports issued by companies like CRISIL, CARE, SEBI and others.

5.  Floating Rate Funds- You can generate good returns by investing in those funds which are linked to the performance of the markets. These funds are debt instruments actually and their performance is closely linked to the benchmarks set by the debt markets. You gain when the markets perform but lose when they perform otherwise.

To summarise- you can choose any of the above five mutual funds to beat market volatility. Some of these funds are made entirely of debt instruments while others comprise debt as well as equity. The maturity of these instruments can range from just one day to 12 months.