Here’s some good news for equity fund investors. While some of them are feeling low because of the heavy losses since January, anyone who has stayed invested for five years has got impressive returns of over 12 per cent a year.
Data from Value Research, a Delhi-based fund tracking firm, show that the category average returns from equity-diversified funds have been 14.5 per cent a year over this period. Banking funds, which invest in banking and other financial sector companies, have given returns of 23.66 per cent.
Other categories that have done well are fast moving consumer goods (FMCG), tax planning and hybrid (equity-oriented) funds.
In fact, even investing in index funds (Sensex or Nifty), which mirror the underlying index, would have given returns of 12.76 per cent (Sensex) and 11.59 per cent (Nifty). There could be some tracking error, which is the difference between index returns and scheme’s returns, but overall, the numbers are positive.
| STEADY RETURNS 5 years | |
| Ending Dec 19, '08 | Cat. Avg. |
| Equity: Banking | 23.66 |
| Equity: FMCG | 14.98 |
| Equity: Diversified | 14.5 |
| Equity: Tax Planning | 13.94 |
| Sensex | 12.76 |
| Hybrid: Equity-oriented | 11.95 |
| S&P CNX Nifty | 11.59 |
| Source: Value Research | |
The chief investment officer of a fund house said, “Though there is a positive trend in the last five years, many retail investors start buying at the peak of the cycle. This leads to serious losses.”
For instance, an investor who had entered the market a year ago in equity-diversified funds would have seen the value of his investment erode by 51 per cent. Some other categories like banking and tax planning are down by 43 per cent and 51 per cent respectively.
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However, a bigger mistake that investors make is that after entering at peak, they exit at a downturn. That is, they do not stay invested for a longer period of time. “Most investors, who have entered the market as late as last year, will still make money if they stay invested for over five years,” said another fund manager.
According to financial planners, the time period is extremely important. “Investors get lured by quick returns and often book small profits instead of waiting for five years or more for bigger returns,” said a financial planner.
There are a lot of opportunities in times like now when the market has gone down significantly. “Investors should typically look at good equity-diversified funds instead of direct stocks,” said Kartik Jhaveri, director, Transcend India, a financial planning firm.
He added that there are a whole lot of good funds with a great track record. An investor should look at their returns over time before investing. Direct investment in stocks is a strict no-no because while returns can be good, there is a much higher risk element. “If someone has Rs 100 On Monday, I would advise them to invest Rs 50 in a good fund,” said Jhaveri.
And given the past record, returns could be quite impressive.