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Taking stock: Even as markets touch new high, bet on equities for superior returns

Jun 09 2014, 07:05 IST
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In a dramatic rebound, the average return of infrastructure schemes over the last three months jumped by 50 per cent thereby lifted the three-year compounded annual growth of the group of infra schemes to a reasonable 8.9 per cent. In a dramatic rebound, the average return of infrastructure schemes over the last three months jumped by 50 per cent thereby lifted the three-year compounded annual growth of the group of infra schemes to a reasonable 8.9 per cent.
SummaryIf entire MF industry found it hard to come out with explanation on performance of their funds

If the entire mutual fund industry found it hard to come out with an explanation on the performance of their infrastructure funds that were the darling of their sales teams six years ago but have languished in performance ever since, they can now go to their investors with a broad smile and show them the fruits of their patience. In a dramatic rebound, the average return of infrastructure schemes over the last three months jumped by 50 per cent thereby lifted the three-year compounded annual growth of the group of infra schemes to a reasonable 8.9 per cent. Not only has it made up for the underperformance over the last few years, it has also re-established the fact that equities are a long-term play and investment in good companies with good business and assets may be down but not out.

A good example of the same is the equity performance over the last six years (July 2008 to June 2014) even when the equity markets faced huge volatility. While an investment of Rs 3,60,000 in Sensex, spread evenly across 72 months in the form of systematic investment plan, would have grown to Rs 5,52,543 now, the same monthly investment of Rs 5,000 over the last six years in a recurring deposit with a bank, earning a fixed 9 per cent per annum, would have grown to only Rs 4,70,342. So even in a period of highly volatility, equities have outperformed fixed interest returns by a significant margin.

With a sudden revival of investor sentiment — both global and domestic — ever since the opinion polls indicated a strong mandate for the BJP-led NDA, the Indian stock markets have witnessed an unprecedented surge thereby making up for the underperformance over the last few years. The Sensex at the Bombay Stock Exchange has jumped by 20 per cent over the last three months closing at an all time high of 25,396 on Friday.

The mutual fund industry which is a direct beneficiary of the rise in investor sentiment too benefitted and the industry’s average assets under management for the month of May crossed the Rs 10 lakh crore milestone for the first time ever and stood at Rs 10,11,102 crore. While the major additional inflow continues to be in the income funds and liquid funds, the inflows into equity schemes too witnessed a revival.

“With a turnaround in the overall sentiments in the economy, there

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