A market will rise and fall due to many factors, a rise is good sign but not every fall is bad sign. It can be due to correction which is a sure sign that markets will rise higher but market dips bring bad news to everyone involved either it is a seasoned investor or a mutual fund fund investor. But there are some mutual fund schemes that help you gain returns in the gloomy market environment.
These type of mutual funds are called reverse market funds or bear funds or short funds.
And they have two different investment styles- actively managed and reverse indexed. Both these funds help you make money when the market goes in the wrong direction.
Reverse index fund
As the name suggests the reverse index fund profits when the the index is in the negative direction.
Ex. If the index drops by 10points then the your fund NAV will increase by 10 points.
Some fund managers use leverage to grow their fund to pay double of the index’s drop.
Ex. The index drops 10%, then your fund might earn 20%
Actively managed fund
These funds are short term and will look for quick returns in the daily market fluctuations. The investment strategy will vary from manager to manager, hence the returns may be different for different fund houses.
Reverse market funds might look like a safe bet in the downward market, but remember the total management fees is higher than the traditional mutual fund schemes. But the overall cost will not cost you more than your initial investment amount.
Best used to regulate your overall portfolio risk.