As an investor, you are likely to seek options with low volatility to ensure effective safeguards against fluctuations in the market. The popularity of low-volatility index funds has increased as they have been designed to show fewer fluctuations than the larger stock market. Such investments include stocks from different sectors marked with low volatility compared to the overall market.

For example, healthcare stocks may likely showcase fewer fluctuations than technology ones. The concept of low-volatility investments gained momentum after the 2008 financial crisis and has the potential to showcase impressive growth. Let us learn more about low-volatility funds and why they can be your better alternatives.

What is a Low Volatility Index Fund?

The term ‘low volatility’ gives out the meaning of the index fund. It is a type of fund which offers exposure to a specific market in a way that it attracts lesser volatility than the broader market. However, a smooth movement through the market is the primary goal of low-volatility funds. In practical scenarios, low-volatility funds could lead to a lag in the market during favourable scenarios. 

On the other hand, low-volatility funds aim to  provide better downside protection in the event of market failure. In schemes such as Nifty 100 low volatility 30 index, the values can swing unpredictably as and when markets move up. Over a long period, such patterns could transform into improved risk-adjusted returns. As a result, they can serve as a suitable pick for investors who don’t want to take risks.

What are the Reasons for Choosing a Low Volatility Index Fund?

You can trust a low-volatility index fund as they aim for downside protection. However, many other advantages with low volatility funds make them a must-have addition to your portfolio.

The most common reason to add low-volatility index funds is the potential safety against extreme market movements. It has become one of investors’ notable preferences after the 2008 financial crisis and the financial turmoil during the COVID-19 pandemic.

Low-volatility index fund options may be a suitable alternative for investors who don’t want to take risks. Investors may consider low-volatility funds as a less stressful alternative to equity investing with potential to earn optimal returns.

Equity markets may take some time to recover from sharp sell-offs. Sharp sell-offs are a sudden sharp decline in security prices accompanied by increased volume in trading. However, unlike equity markets, a Nifty 100 low volatility 30 index fund doesn’t come with sharper sell-offs. On the contrary, low-volatility funds can reduce risks for time-sensitive investors alongside delivering the upsides associated with equities.

Final Words

The value benefits of low-volatility index funds can help investors find a solution to extreme fluctuations in the financial market. It is important to look at their benefits, such as freedom from concerns of recovery time and ease of investment with limited risks. However, you should consult with professionals before choosing the right index funds. Talk to an expert and pick a low-volatility index fund for your portfolio.