Worried about High Volatility Mutual Funds ?

Padmaja Choudhury   /   June 17, 2022
High Volatility Mutual Funds

3 Types of Mutual Funds That Can Help Manage High Volatility

In this current high volatility phase, mutual funds such as large cap, arbitrage, and balanced advantage funds can help manage the volatility. 

We all had big hopes for this year. But it hasn’t been the way we expected. Inflation is high and central banks around the world are increasing interest rates. A host of related factors has increased the volatility in the market.

So, as a mutual fund investor, can you manage the high volatility mutual funds? Is the volatility in the market giving you sleepless nights?

Today, we will look at some types of mutual funds and the best way to invest to help you tide over the market volatility.

Large cap funds high volatility mutual funds

A large cap fund is a type of equity fund, and it is a good choice for first-time investors who want the benefits of equity investments without too much volatility.

Large cap fund invests in the top 100 companies of India. The stock price fluctuation of these companies is relatively range bound, unlike other companies, as these companies are market leaders and have a competitive advantage. These companies are better equipped to handle market volatility and economic upheavals.

Hence, a large cap fund is one category of mutual fund that you can look to invest in during volatile times.

Arbitrage funds

Arbitrage funds are typically favoured by High Net worth Individuals(HNIs) as it comes with low volatility and favourable equity taxation. Arbitrage funds are categorised as hybrid funds, which is considered ideal for investors with an investment horizon of one year.

So, what makes arbitrage funds a good option to tide over market volatility?

Arbitrage funds look to benefit from the inefficiencies in the market, i.e. the price difference of an asset in the cash and futures market. These funds invest in derivatives and take advantage of the price difference till it is available.

The fund managers of arbitrage funds lock in the profits by taking equal and opposite positions in the cash and futures markets. Let us understand this with an example. In the cash or spot market, stocks of a company are trading for Rs 100. In the one-month futures market, the same stock is selling at Rs 103. In this case, the fund will look to buy the shares in the cash market for Rs 100 and sell it for Rs 103 using their one-month futures holdings. Now, let us assume that the stock’s price on the settlement day is Rs 105. Because the stock was purchased at Rs 100, the investor will gain Rs 5 in the cash market. However, because the pre-determined stock price was Rs 103, the investor will lose Rs 2 in the futures market. Overall, a profit of Rs. 3 is made from the deal.

Balanced Advantage Fund

Balanced Advantage Funds are hybrid mutual funds that can invest in equities and debt instruments and rebalance the portfolio according to the prevailing market conditions and outlook. So, a balanced advantage fund can benefit when the equity markets are strong, and the allocation to debt instruments helps stabilise the fund’s portfolio.

This flexibility also allows fund managers to anticipate some market movements and protect or invest their money according to the situation. It will also enable fund managers to course-correct in adverse market conditions. This will help you get stable returns on your investment rather than experiencing high volatility mutual fund portfolio.

How to invest during volatile times?

In the above paragraphs, we have mentioned three types of funds that might help lessen market volatility’s impact on your portfolio. However, if you are already investing in a good quality mutual fund scheme through SIP, we suggest you stay invested.

The Systematic Investment Plan(SIP) is a way to invest a specific amount of money regularly. So, if you are new to mutual funds and want to start investing in funds, then SIP is the way to go. SIP helps you average out the cost of investment over the long run. It is because you get more fund units when the market is down and fewer units when the market is going up. As you invest a specific amount of money irrespective of the market levels, SIP averages out the cost of your investment.

Moreover, with SIP, you don’t have to worry about market volatility as you are not checking the market levels before investing in mutual funds. Once set up, the money is automatically debited from your bank account and credited to your investment account. So, it would be best if you could invest in mutual funds through SIP and beat market volatility.


With the stock market looking a little shaky lately, many investors are understandably concerned about volatility. When investing, volatility can hurt your return. Fortunately, there are some types of mutual funds that you can use to help manage volatility. Before you decide on a strategy, analyse your risk tolerance and goals to develop the best investment plan for yourself.

The only money management App you will need
Download Wealthzi app now!