Volatility and Mutual Funds

If we want to derive the meaning of volatility in the financial sense, then it is the degree of variation of a price series over time as measured by the standard deviation of logarithmic returns. Simply put, it is severity with which the prices vary. When it comes to volatility people generally relate it only with equity. However, volatility is also in debt as well, but it is not as severe as equity. More volatility indicates a more risky proposition. But is this also applicable to your mutual fund investments? Yes, this is applicable to your mutual fund investments as they invest in securities, be it equity or debt.
 
So how should we take volatility into account while making investments in mutual funds? Volatility can be taken as another investment opportunity. Specifically, the people who have SIP (Systematic Investment Plan) ongoing benefit much from the volatility as they would buy more units when the market falls and fewer units when markets are up. So this gives them the advantage of rupee cost averaging.
 
Volatility is an important part of investments. The general principle is buy at low and sell at high or as per the modern principle it is buy high and sell higher. Assume if there is no volatility in the market how would you buy and sell securities as per the principles noted above? And how would you create wealth? As it won’t give you any opportunity to buy. So volatility is one of an integral part of the investment cycle and you can say it is an unavoidable risk of investment. However, people with disciplined investments via SIPs need not worry as you would be automatically grabbing the opportunity to buy more at low.