There are various factors that can impact the stock market. These factors can cause ups and downs in the stock market. Therefore, investors might get scared when the market goes down. Many also find it difficult to pick an investment when the market is down.

What is the right investment option in such a situation?

Most investors invest in equities in order to achieve their long-term financial goals. This is because equities can generate substantial returns if a person stays invested for a longer tenure.

While the stock market tends to change regularly, it can affect returns in the short term. However, investors can ride out the impact caused by short-term ups and downs if they stay invested for the long term. Thus, equities are considered a great investment option for people who want to grow their wealth over a longer-term.

Another option that investors have is a unit linked insurance plan (ULIP). ULIPs are unique products that offer the benefit of life cover as well as investments. Such plans are created to earn benefits from the stock market over a longer-term. Therefore, ULIPs are also beneficial to achieve long-term financial goals.

Before choosing an option between large caps, mid-caps, and ULIPs when the market is down, it’s crucial to understand these investments. Let’s take a look at each option:

Large Caps

Companies are classified in the stock market based on their market capitalisation. Companies ranked in the top 100 on the stock exchanges are considered large-cap companies. Such companies have a great performance record.

These companies tend to provide stable returns. Therefore, large-cap stocks are a great investment option for investors with a low-risk appetite.

Mid-Caps

Companies that are ranked between 101-250 are mid-cap companies. These companies tend to be riskier than large-cap companies. However, such companies can provide high returns. Therefore, mid-cap companies are right for investors with a high-risk appetite.

ULIPs

Unlike large-cap and mid-cap equities, which trade on the stock market, ULIPs are insurance products. These products offer the benefit of insurance and investment.

When a person invests in ULIP, a part of the premium goes towards life cover, and the remaining amount is invested in various options like equity and debt investments.

As ULIPs invest in different options, they tend to lower the risk. Therefore, ULIPs are a great investment option for investors who want to earn stable returns over a long period.

What is the Right Investment Option When the Stock Market is Down?

Large-cap companies tend to be stable whether the market is up or down. Hence, they are a safe investment option. However, if an investor wants to earn higher returns, then he/she should consider investing in mid-cap companies. This is because these companies have a great potential for growth. But investors should keep in mind that mid-cap companies are riskier compared to large-cap companies.

Furthermore, in the case of ULIPs, investment is made in large-cap as well as mid-cap equities. Investors can choose funds based on their risk appetite. Thus, ULIPs can help achieve long-term financial goals.

Investors can get scared when the stock market is down. However, this is a great time to purchase high-quality stocks at a lower price. Therefore, investors can accumulate good stocks in their portfolio when the market is down. Once the market goes up, their returns can increase significantly.