Over the past few weeks the BSE Sensex and the Nifty 50 had almost touched their record highs. The Sensex nearly reached staggering levels of 32,000 while the Nifty was very close to 10,000. Markets have attained new highs over the past 3 years and investors in equity mutual funds have reaped rich rewards of such investments. It may be noted that during the same time period real estate prices and fixed deposit rates went down; even investment in gold did not yield good profits. Thus, since all asset classes were on the downturn, there was no better time for investments in equity mutual funds.
With the markets reaching new highs, analysts and varied people in the media are speaking about the un-sustainability of such high market levels. A few investors are thinking of investing in equity MFs as other asset classes are not faring well, while others want to withdraw their funds from equity MFs. However, since there is widespread speculation about the markets currently being over-valued, many people are thinking of not investing additional funds into equity mutual funds. The current financial situation is wrought with confusion! So what is it that retail investors need to do in such a situation?
It is important to remember that the confusion that is currently prevalent is not new. Such confusion was present in the past, it is currently visible, and it will be confusing in the future as well. All investors need to understand one basic fact, i.e., markets are bound to experience varied downs and ups. Markets tend to behave as per the chain of supply and demand. Prices typically increase when the demand is huge and they decrease when the demand is less. For example, the Nifty 50 has gone up several times and gone down an equal number of times over the past 15 to 20 years.
But the fact of the matter if that on a long-term basis, the Nifty has continuously gone up and offered superior yields as opposed to all other kinds of asset class. The best part is the fact that in India, equity mutual funds which are actively managed by professionals have provided much higher returns as compared to the Sensex and Nifty indices.
If investors had not paid heed to the plethora of noises and soundbites in the media and markets and continued investing INR 10,000 on a monthly basis in well-managed equity mutual funds for the past five, ten, or twenty years, then they would have a huge corpus in their hands as of today.
A few popular and good MF schemes over the past 5, 10, and 20 years include Franklin India Prima Fund, Sundaram Select Midcap, Aditya Birla Sunlife Equity Fund, Franklin India Prima Plus Fund, Reliance Growth Fund, and HDFC Equity Fund. A monthly SIP investment of INR 10,000 for the past 5, 10, or 20 years would have yielded much better returns than any other asset class.
For example, an SIP monthly investment of INR 10,000 in Sundaram Select Midcap mutual fund over the last 5 years (totaling to INR 6, 00,000) would have grown to INR 11, 39, 195 as of September 1, 2017. This means your investment would have nearly doubled if you had continued investing in equity mutual funds without worrying about the market.
Investors just need to keep avoiding or ignoring the varied market noises and remain focused on the opportunity that is currently available to them, i.e., continuing to invest every month in equity mutual funds via SIP irrespective of the good fortunes or crisis that hits the Indian economy and subsequently the share market. Retail investors should stop the unnecessary worry about the different market levels and keep investing via SIP.
Investors who currently want to make bulk amount investments should use the Systematic Transfer Plan or STP route. Such investors can also try equity-based hybrid funds for bulk amount investments. Whenever you invest in equity mutual funds, you need to ensure that you remain invested for the long term. It is also important to plan in advance about harvesting such investments before you attain your financial goals.