Should I be concerned about my Mutual Fund Investments going down?
As the Indices, remaining true to their essence go on a roller coaster ride, the usual concerns of investors(even the long term kinds) surface yet again. I Don’t blame them! After all it does require a lot of discipline and mind control to be able to digest your gains getting lower by the day.
It is easy to blame the stock markets and compare the returns to other investment products like the Bank Fixed deposits which for now are giving better returns. However, this comparison is not justified. For one, while one is a fixed interest instrument giving regular payouts, the other gives capital appreciation and you can’t compare these two different things on the same parameters. Secondly, a year or two back (when possibly you invested) these FD’s were certainly not as lucrative and were offering returns in the range of 5-6% (Post tax returns were even lower) while the stock markets posted better returns. Interestingly, for those who have remained invested for longer periods, the returns continue to be rewarding.
While many investors fret and worry over their diminishing returns in the current market situation, let us be more scientific about our study and only then can we be in a position to arrive at a more informed choice and decision.
When you choose to invest in equity mutual funds that invest in the stock market, you are in essence making a conscious choice to get higher returns that are also Inflation proof and Tax efficient. However, what you are also choosing is to accept the risk that comes with higher returns. In the current times, the stock market is going through a rough patch - Inflation, rate hikes, FII selling Indian equity, threat of recession in many countries and not to forget the Russia Ukraine War. There are many factors that are influencing the negative sentiment in the market.
When the entire stock market is affected, even your equity mutual funds will be impacted. Even though, one may have chosen a fund with a great past record, one cannot be always certain about the Financial market.
As an investor, one would obviously like to invest in the best performing mutual fund. We expect the same performance level to be consistent year after year, even though we might have invested at an initial horizon of 5-10 years. Every fund goes through highs and lows. Take up any fund which you think has done very well over last 20-25 years and you will find multiple years of underperformance in them but over a period of time, these have delivered returns that are far superior to many other traditional investment instruments.
It is investors who will have to remain consistent with their behaviour pattern. One should not become overoptimistic when funds are doing great or become extra pessimistic when they are doing badly. The only way to manage finance over such long periods of time (which is anyways essential for wealth creation) is to maintain asset allocation, keep rebalancing between different asset class and have reasonable expectations.
For many investors who invested in Flexi Cap Funds, Tax saver funds or emerging equity funds in the last two years, the journey has been either static or at some places posting meagre returns. So does it mean that we should exit from these and invest elsewhere in another better performing fund? Well that would be like the proverbial “Sau Kode and Sau Pyaaz” like of situation. It would be worthwhile to note that these categories invest across market capitalizations and sectors and recommended to moderate investors to achieve their long-term goals. If you have a moderate risk profile and an investment horizon of seven years, you may continue with your investments. Continue with your investments if they match your investment objective. If they are not in line with your investment horizon or goals, only then it would be advisable to switch.
The financial Markets may be volatile but this is not something that is happening for the first time. The likes of incidents of Harshad Mehta, Lehman crisis and the more recent Covid outbreak, all have triggered the markets to go southwards. Despite this, the last 40 years returns of the Sensex have been in the range of 16%. Translating into real figures, if you had invested Rs. 1 lakh in 1982, the value of this would be a cool Rs. 3.78 crore as against Rs. 19.35 lakhs in a Fixed deposit and Rs. 33 lakhs a PPF. Therefore, if you have picked up the right fund as per your unique needs after due research, then there is not much to worry about the market’s uncertain ups-and-downs.
One thing to always avoid doing is timing the markets, because the more one tries doing it, the more they are at a chance of losing. It is the job of the fund managers to time the markets. All you need to have is just patience and continue your SIP’s to deploy your funds in a disciplined manner irrespective of the falling and rising markets.
On a closing note, It is natural to be concerned but if you have taken an informed decision after due diligence, then it’s time to cut out the noise and remember the 5 Golden wealth creation mantras that will surely help you analyze your investments better and stay on track:
Save with a Goal in mind
Stay focussed on the Goal
Keep it simple
Think long term
Be regular
Cheers to a Informed Investor
Anupama Bhargava CFP
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