Often I am asked -- Which fund should one Invest in? I generally follow this with my question - for growth or income? This gets me a stare, because the expectation was of a tip. And rightly so as the most common goal any investor has is a simple one -- To make his money grow and fast. A valid desire, but a dangerous one. It is not a goal. It is a human instinct -- Greed. Dangerous, because it drives you to turn a blind eye to risks, important to guard your savings. And you might end up believing all the "too good to be true opportunities". This often leads us to commit the most common investment mistake -- Performance chasing. Last year in our chase we were pouring money only in technology. And with prolonged bear phase in stock market and rate cuts boosting bond value, investors are moving in hoards to bond funds.
Investing is more than playing musical chairs with asset classes. It is more realistic to zeroing in on tangible financial goals - daughter's wedding, kids' education, retirement, may be a new car in two years time, buying a home etc. The planning exercise itself will help you determine the time horizon for your investments. And this exercise itself will save you from anxiety and risks.
Today we have a slowing economy, cloudy political outlook, the strong bear grip and tech stocks down 46% in 2001 on BSE IT Index. The broad market is off 24% on the Nifty. As it can't get more dull than this for equities, investors have run for cover to bond funds - the only winner in 2001. Every investor running for cover could make a mistake.
Every bear phase gets its doomsday prophetic, who torture data to pronounce the death of long-term equity investing. But the trust is -- over long-term, equities prove to be the best performing asset class. Even the highly speculative, inefficient and supposedly totally rigged Indian market which is at its lowest ebb in several years, has been the best performing asset class for a eight year holding period and above. And the return goes up assuming regular investing in equities based on Sensex. Even in the brief history of open-end equity funds, there are a handful of "islands of safety" where long-term returns of equity funds continue to be impressive. With returns in excess of 20 per cent annualised against a negative 1.13 per cent return on Sensex, in the last five years. These funds re-affirm the basic doctrine - equities are meant for the long haul and require commitment. It is important to highlight here that even five years is not a sufficiently large period for equity investing but the sample is constrained for want of funds with a longer track-record.
The trick in the whole business of long-term investment is a commitment to long-term by ignoring the interim noise and regular investments. I still wonder, when we earn monthly salaries, buy our car and home on installments, why we don't invest in installments. We generally tend to invest lump sum on a given occasion which often proves to be bad time for making investments. It happens once again because we tend to chase past performance. The truth will always prevail--for your long-term investments, equities will remain the most attractive asset class.
I am not saying don't invest in bond funds or bonds. If your goals justify you must. For investment goals which are few years away and you don't want to take chances, fixed income investments like bonds or a bond fund will be more suited for you. For your long-term goals, which are many years away and you can withstand an interim volatility, equities and equity funds will be suited
For the week ending August 31, 2001, the market lost 60.56 points (-1.83%) on the Sensex and 28.14 points (-1.80%) on BSE National Index. The top gainers were Magnum Pharma (+2.29), Pioneer ITI Pharma (+2.05%) and Taurus Starshare (+1.66%). The top losers were Pioneer ITI Infotech (-6.17%), Alliance New Millenium (-5.28%) and Taurus Discovery Stock (-4.84%).