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Fear won't Bring You Gains

Investors who nervously book profits at every little gain are going to have a bad time in the coming bull run

The other day, barely had the ink dried on the first headlines about the Modi rally on the equity markets that I got a few anxious emails from some investors. These nervous souls wanted to know if they should sell out of their equity funds, book their profits and shift the money to safe fixed income investments.

I hardly knew whether to laugh or to cry. If ever there was a time when one should believe in equities and stay invested--in fact, invest more--then this is it. And yet, as every investment advisor knows, there is a special breed of investor who gets nervous at every uptick in the market. Every paisa gained brings to them heightened nervousness about whether it's about to be taken away. I guess every investor is a slave to his or her own psychology, but the nervous types' behaviour is specially self-destructive. From experience, I can tell you that most of these people will pull out their money now. At every fluctuation in the market they'll feel happy that they've saved their profits. However, eventually, when the market is much higher, they'll invest again. At that point, they'll be at real risk and would have missed out the most profitable part of the coming bull run.

There are those who stay invested at all times, even when they shouldn't. There are those who never invest in equities. And there are these nervous ones who manage to combine the worst of all worlds. Regardless of what the future brings, make no mistake--fixed income returns in India will barely be able to cover the inflation rate. To get real returns from one's investments, there is no alternative to equities or equity-backed investments like mutual funds. However, the cure for the nervousness this induces in some people is to invest regularly, so that your gains and losses get smoothed out. And be prepared to take a little rough with the smooth.