Don't be spooked by the negative news flow or extreme volatility. This is the time to think long term and stay invested.

A lot is happening in the Indian stock market. Some days we come down by close to 3%, only to make a swift recovery the next day. Some days experts warn that we are range bound. On other days, we are told that a correction could happen. So, if you are a retail investor who invests through mutual funds what are you supposed to do through all of this noise?

To start with, you need to recognise that whether it's domestic catalysts or international issues like the Greek crisis or the macro-economic problems in Europe, it appears that for the time being market swings are here to stay. If you have already invested through mutual funds, or have been planning to do so, chances are that you are beginning to get a little spooked by what you see and wondering if a repeat of 2008-09 might be next. We aren't fortune-tellers, so can't tell you what comes next. What we can give you are some time-tested tips that can help you cope with all this volatility that we are experiencing right now.

STAY INVESTED

Now is not the time to pull out of the market. Unless you fear the Sensex will collapse down to 8,000 levels, stay invested. Why disturb your investment process and interrupt the compounding of your capital by completely pulling out of the market?

USE OPPORTUNITIES TO ADD TO YOUR PORTFOLIO

If there is a good fund that you want to invest in but have not done so because you thought the markets were racing up too quickly, use the declines in the market to add to your holdings. Patient investors who think long-term will find the current valuations more suitable to put new money to work.

CUT OUT THE NOISE, THINK LONG-TERM

Will the Greek crisis really affect the consumption patterns of middle-class Indian families? In the long run, the Indian market will go up or down based on the fundamentals of our economy and the earnings potential of our companies. The long-term future for our economy is very bullish. Invest in high-quality mutual funds which invest in companies that will benefit from India's long-term growth.

DON'T WAIT TO TIME THE MARKET

Have you in the past missed out on a bargain at the local supermarket because you thought the price could go down lower if you wait longer? It's the same with today's stock market. Retail investors convince themselves that they will be ready to jump into the market right when it hits bottom. The reality is that even the best of professional investors admit that its impossible to time the bottom. So, as a retail investor it's best if you continue to invest periodically through SIPs (systematic investment plans) rather than wait for that perfect opportunity to enter the market. If you believe that investing creates wealth, then even if the prices are going down, with each successive SIP instalment you will be able to rupee cost average your price even lower than what it is today.

REVIEW YOUR ASSET ALLOCATION

If you haven't looked at your mutual fund asset allocation of late, do so now. Market volatility often moves prices around dramatically. Your exposure to certain kinds of funds can be different to what you think it might be, or more importantly what it should be given your age/stage in life and your risk taking capacity. Take a close look at your portfolio to ensure that you still have the right mix of assets allocated across your funds and the debt and equity asset classes. Make the necessary adjustments to get your portfolio back in shape.

FIRST-TIME INVESTORS, START INVESTING NOW

If you are a first-time investor you can find a lot of excuses to stay away from the market. But, don't be intimidated by news of falling markets. These kinds of market movements will continue to occur for the rest of your life. If you believe in the longterm future of India, then it's best to buy funds when the prices are dropping, rather than when prices are rising. India is a great investment opportunity and one that is not lost on global investors who are coming into the Indian market in hordes. You shouldn't miss out just because you cannot take risk, because the biggest risk is that of not being invested. Don't leave your money in a bank account that won't earn you a huge after-tax return. Invest in equity mutual funds and give yourself the opportunity to earn better returns on a post-tax basis than your bank FD might give you.

DON'T TRY STOCK PICKING AT HOME

History has shown that retail investors don't usually make money by picking stocks and managing their own stock portfolio, because they don't have the time, expertise or research capabilities, compared to professional investors. If you aren't an investment professional, you are best advised to invest through mutual funds. Rather than managing portfolio risk on your own, it would be wise to put your money into a mutual fund where an expert fund manager will do the stock picking and risk management. If you are unsure of what is a good fund to invest in, at a minimum invest in an index mutual fund, which should mimic the performance of the market indices.

Source: Authors are co-founders of iTrust.in, a leader in financial advisory business.