For the last few days, we have been seeing a downturn in the market, which could have prompted you to reconsider your decision to invest in mutual funds. During such situations, bank savings appear to be the safest option because your invested amount would not go down at any given point. However, there is a flip side: inflation will eat up most of the returns over time. In actual terms, you would end up with less money.
On the other hand, equity mutual funds appear to be volatile because they invest in listed company shares. As the stock market moves up and down, the invested amount fluctuates. However, seasoned investors and financial experts understand that volatility can be a powerful wealth-building tool. Understanding and leveraging volatility can turn market fluctuations into opportunities rather than obstacles.
Historical Perspective:
This is not the first time that Index has made a southward journey, nor will this be the last. In the past, we have witnessed many such downturns due to Political events, Financial Market crises, Pandemics, etc.
High interest rates, FII Outflows, Political shift in US, and Muted expectations from budget 2025 are some of the global and domestic factors that contributed to the current uncertainty.
The table below gives us a perspective on past events that led to the market crash and the time it took to recover.
| Event | Date of Event | Nifty | No of Days for 10% Return | No of Days for 15% Return | No of Days for 20% Return |
| UPA 1 election (2004) | 17-05-2004 | ₹ 1,388.75 | 84 | 104 | 134 |
| NPA of India Banks (2006) | 18-05-2006 | ₹ 3,388.90 | 138 | 178 | 283 |
| US Financial Crisis (2008) | 21-01-2008 | ₹ 5,208.80 | 1426 | 1523 | 1552 |
| Demonetisation (2016) | 08-11-2016 | ₹ 8,543.55 | 115 | 167 | 170 |
| Covid (2020) | 19-03-2020 | ₹ 8,263.45 | 24 | 26 | 51 |
Key Insights from Market History:
- Faster Recoveries: Events like short political uncertainty or pandemics will have a quicker recovery, as they happened in 2004 & 2020.
- Faster Recoveries: Financial crises like the 2008 recession in the US and the 2006 NPA in India need more time for recovery.
- Overall Market Growth: Looking back to the last 3 decades, market downturns have always been temporary. Major indices like the Sensex have demonstrated an upward trajectory despite periods of intense volatility. A significant contributor to faster recoveries has been the consistent inflow of funds into the equity markets. This historical resilience underscores the importance of staying invested during volatile times.
The Role of Volatility in Wealth Creation:
- Short-term fluctuations are temporary: Markets recover over time, rewarding patient investors.
- Consistent investments yield better returns: Staying invested through downturns allows investors to benefit from eventual recoveries.
- Market declines offer buying opportunities: A downturn is an ideal time to invest for those with a long-term horizon (3+ years).
Conclusion:
Volatility is not a threat; it’s an opportunity for those who stay invested with patience and discipline. While short-term market movements can be unsettling, history shows that markets recover and reward long-term investors. The current downturn presents an opportunity for those who stay committed. Stay focused, trust the process, and let volatility work in your favour to build lasting wealth.
Embrace volatility—it’s your friend on the journey to wealth creation.