Advantage Bear Market

For the past four years, you’ve not gained much from your equity investments. “So what?” says CEO of Value Research and Editor of magazine, who offers sound advice

Dhirendra Kumar, Be patient: You may have been sold equity mutual funds by agents promising you high returns, which is just their sales strategy. But you’re still safe. Four years is too small a period to measure the returns from any equity investment, and all you may have got is a low 3% annual yield. For any equity investment to live up and deliver its full potential, you must see it over at least one full market cycle of ups and downs. The past four years were nowhere near that. Invest regularly: A systematic investment plan ( SIP) is where you invest in equities, or a chosen equity mutual fund scheme, every month regardless of market conditions. Study the maths: Had your SIP started six years ago, instead of four, it would have returned 8.5% per annum instead of 3%. Had you started eight years ago, the returns would have been 11%. Ten years ago would have yielded 16%, which means a 440% total growth in a decade! The pitfalls: Many investors buy into equities only when there are big upswings—too late—and expect that to continue. It usually doesn’t. And they stop investing when markets are down—a bigger mistake. Markets move up and down but tend to grow immensely over decades. Bright future: Over such long periods, you can expect equities as a whole to grow about as much as the nominal GDP growth—which is growth unadjusted for inflation. And India is growing! While you got only 3% in the past four years, the economy has grown at nominal 15%. So take heart—you should get those returns in the future. Regard these “bad” years as good news because, if you keep investing regularly, you’ll be “buying low.” With equities, nothing could be better.