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Equity Investing: Staying invested is key to high returns

An investment horizon of around seven years, staggered investments and continuing with SIPs can help you make money in the equity markets.

SIPs investing works in any market condition and the key is to continue with the regular investment without worrying much about the market levels. 
SIPs investing works in any market condition and the key is to continue with the regular investment without worrying much about the market levels. 

As returns from most equity mutual funds are in red, new investors are staring at a loss and are concerned. They have not witnessed many market phases and have seen two good years where the market was largely in a one-sided movement despite the challenges of Covid.

Experts say the current market scenario is actually a good reminder of the usual temporary declines every investor will have to tolerate in the equity markets. Historically, the Indian equity markets have had temporary intra-year declines of 10-20% almost every year. Only three (out of the last 43 calendar years) had intra-year declines of less than 10%.

Stay invested

Though the equity markets fluctuate a lot in the short term, they have broadly gone up over longer time frames of over seven years. This is because the equity market returns tend to mirror the earnings growth over the long run. The Nifty 50 TRI has historically always delivered positive returns over seven-year periods. Eight out of ten times, the CAGR has been at least 10%.

Arun Kumar, head of research, FundsIndia, says what investors are seeing right now is perfectly in line with what history tells us. “New investors can keep this in mind when deciding their asset allocation. If they are worried and losing sleep over the current market volatility and uncertainty, then they are better off starting their investments with a lower equity allocation,” he says, adding that new investors should invest in equity funds with a horizon of over seven years.

Harshad Chetanwala, co-founder, MyWealthGrowth.com, says, it is a good time for new investors to start investing in equity mutual funds. “Those who want to invest through SIPs can start their investments. New investors looking to invest lumpsum need to follow a gradual approach and invest 10-15% on every 3-5% drop in the market. You need not rush at this stage with the lumpsum,” he says.

Long-term strategy

While most of the new investors that have come in the past 6-12 months are seeing losses now, they should invest in equities with a long-term horizon. Santosh Joseph, founder and managing partner, Germinate Investor Services, says as equities could give negative returns in the short-term, investors must stick to their investment for at least five years or more and ensure that the investment is aligned with their risk appetite.  “If you are someone who is not used to risk, there’s no way you could have put 100% of your money into equity. You need to be well sorted in terms of debt and equity mix in your portfolio so that these volatilities could be controlled or balanced out in your portfolio,” he says.

In the current juncture, Kumar suggests that investors who have fresh money to be deployed into equity mutual funds can invest 40% of the amount immediately. The remaining 60% can be staggered and invested over the next three months. “These investments can be into equity funds with a proven track record of at least 7-10 years which are managed by experienced fund managers. By choosing funds that follow different investment styles, investors can also get adequate diversification in their portfolio which could help in containing downsides,” he says.

Invest through SIPs

Systematic investment plans (SIPs) are more of a disciplined approach to investing and they help investors to build a large corpus gradually by investing every month. SIPs investing works in any market condition and the key is to continue with the regular investment without worrying much about the market levels.  Sharp declines are usually followed by sharp recoveries and continuing with the SIP will ensure that the investor is well-positioned to take full advantage of this.

Experts say SIPs get better when investors accumulate them during volatile periods. “If you are someone who is new to the market, you could begin an SIP now and not worry about the market falling further. If you have newly invested, then continue the process. You have just started your journey, it will take some time and soon you will be a winner,” says Joseph.

BATTLING THE LOWS

— New investors are better off starting their investments with a lower equity allocation

— Invest 10-15% on every 3-5% drop in the market

— Be sure about the debt and equity mix in your portfolio so that market volatilities can be balanced out in your portfolio

— Sharp declines are usually followed by sharp recoveries and you can take advantage of this via your SIPs

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