If you have ever felt uneasy watching your investments rise and fall unpredictably, you have already experienced what market volatility feels like. For many investors, sudden swings in prices bring anxiety, as it becomes difficult to know whether to hold on, buy more, or sell. The good news is that volatility, while unsettling, is not unusual — it is a natural part of investing.
Market volatility refers to periods when the prices of markets or securities change quickly and unpredictably. It reflects how much and how often prices move, giving investors a sense of the risk and uncertainty involved. When volatility is high, prices can swing sharply within short periods. When it is low, price movements are steadier and more predictable.
This rise and fall is influenced by many factors: political events, economic shifts, global conflicts, speculation, or even natural market cycles. While volatility cannot be avoided, it can be understood and managed. In this article, we will explore what market volatility means, how it is measured, and practical ways to deal with it so that it does not derail your long-term financial plans. Instead of fearing volatility, the smarter approach is to prepare for it. Even the smallest consistent investments, when started early, can help you weather short-term swings and build a more reliable path to long-term wealth. Start SIP now with only Rs. 100
What is market volatility?
Market volatility is essentially the speed and size of price movements in the stock market. In simple terms, it shows how quickly and by how much a stock’s price goes up or down over a period of time. The more frequent and larger these changes are, the more volatile the market is considered to be.
For investors, volatility is important because it directly links to risk. A highly volatile stock may offer the potential for bigger gains, but it also carries the risk of sharper losses. On the other hand, a stock with low volatility offers more predictable returns but with limited growth potential. Understanding this balance helps investors shape an investment plan that matches both their goals and their tolerance for risk.
Volatility affects the Net Asset Value (NAV) — the price of each unit. Equity mutual funds, for instance, are more volatile than debt funds because they invest a large part of their assets in company shares. When stock prices swing, so does the NAV of equity mutual funds, and this directly influences the returns investors see in their portfolios. Market volatility highlights the importance of choosing the right mix of funds. By comparing different mutual fund options, you can identify investments that match your appetite for risk and your long-term financial goals. Compare different mutual fund options today
How does market volatility work?
Volatility plays a central role in shaping how investors see risk and make decisions. If a stock’s price moves rapidly up and down in a short span, it is labelled highly volatile. If it remains stable with little change, it is considered less volatile.
During times of heightened volatility, many investors feel uncertain. This often triggers panic selling, where people rush to exit their holdings to avoid losses. Such reactions can magnify the very price swings investors fear.
In mutual funds, volatility reflects in the value of the underlying assets. Funds with higher exposure to equities — such as equity mutual funds that hold over 60% in shares — tend to fluctuate more during volatile periods. Bond-heavy funds, by contrast, usually show lower volatility. When stock prices rise and fall sharply, they pull equity mutual funds up and down too, influencing the final returns that investors earn.
How is market volatility measured?
Once you know what volatility means, the next question is how to measure it. Investors and analysts usually measure market volatility using a statistical tool called standard deviation. This tells us how much an asset’s returns move away from the average over a period of time. A higher standard deviation means bigger swings and higher volatility, while a lower number means more stability.
Volatility can be tracked in different ways. Traders might calculate it using end-of-day prices, intraday movements, or even projected changes. Historic volatility looks at past price data, while implied volatility uses market expectations to predict future swings. A well-known global measure is the CBOE Volatility Index (VIX), often called the “fear index,” which reflects investor expectations of market movement.
In India, the NSE calculates the India VIX, based on NIFTY option prices. This index indicates how much investors expect markets to move in the next 30 days. A higher VIX points to greater anticipated volatility, while a lower one reflects higher confidence in market stability. For investors, understanding volatility is only half the journey. The other half is acting on it — and exploring top-performing mutual funds can help you find options that have historically managed risks better while still delivering growth. Explore today’s top-performing mutual funds
How much market volatility is normal?
Because volatility is a natural part of the stock market, the key question is not whether it exists but how much is considered normal. Experts often suggest that investors should expect around 15% movement from average returns in any given year.
Markets are usually calm for long stretches, with occasional bursts of sudden movement. Bullish markets, where prices are rising steadily, often show less volatility. In contrast, bearish markets, where prices fall sharply, are typically more volatile and unsettling.
For investors, recognising what level of volatility is normal helps avoid overreaction. By knowing that some swings are part of the process, you can focus on long-term strategy instead of worrying about short-term noise. Accepting a certain level of volatility is part of building wealth. One way to balance risk is by using investments that also deliver added benefits — such as ELSS funds, which not only help diversify but also allow you to save on taxes. Save taxes with ELSS mutual funds
How to handle market volatility?
Sharp swings in the market can tempt investors to sell out of fear, but history shows that reacting emotionally often does more harm than good. Instead, there are practical ways to navigate volatility without losing sight of your goals:
Remember your long-term plan
Markets have always recovered over time. Staying invested and avoiding panic exits can help balance out temporary volatility and build long-term wealth.Consider volatility as an opportunity
Periods of falling prices can provide good entry points. Strong companies may trade at lower valuations, giving long-term investors a chance to buy at a discount.Keep a healthy emergency fund
A safety cushion covering three to six months of expenses ensures you don’t need to sell investments in a downturn to meet urgent needs.Rebalance your portfolio regularly
Review your asset allocation and adjust if it drifts significantly from your target. This keeps your investments aligned with your goals and risk tolerance, even when markets fluctuate.
Conclusion
Market volatility can feel unsettling, but it is not something investors can avoid. Ups and downs are built into the very nature of the stock market. What truly matters is how you respond when prices swing sharply. Giving in to panic selling often locks in losses, while staying patient and disciplined helps you ride out the storm.
By understanding what volatility is, how it works, and how to manage it, you gain the confidence to stay invested even when markets look unpredictable. Having a clear financial plan, keeping an emergency fund, and rebalancing your portfolio as needed all provide stability during uncertain times.
Curating a diversified portfolio with different mutual fund investments can help manage market volatility. Mutual fund schemes invest in varied asset classes like equity share, debt instruments, money market instruments, and more to lower the impact of market volatility on your total returns. You can use the Bajaj Finserv Mutual Funds Platform to review and compare mutual funds and make an informed choice. With over 1,000 mutual funds in one place, you can choose funds that best fit your investment objectives, risk appetite, and returns expectation. Depending on your investment strategy and preferences, you can make a lumpsum investment or start a SIP investment with periodic contributions. You can also use the Lump-sum Calculator and SIP Calculator tools available on the platform to estimate your returns.
