Over the past five years, the returns of equity mutual funds have been lower than inflation. Despite that, how can you make a case for equity mutual funds as wealth creators?
Yes, if you had invested in equity five years ago and had to take all the money out right away, then it would have been bad luck, as you would not have been able to beat inflation. In that case, returns generated from fixed income would have been much more. Even Warren Buffett's investments have not been able to beat gold performance over the last twenty years.
When you are standing at a point of market crisis and reflect on the performance of your equity funds, things look very disappointing. There always exists a risk if you invest at a point and need your money while the market is going through a crisis. To reduce this risk, we, at Value Research, always suggest not to invest your money at one go. Also one should start withdrawing money systematically before one actually needs that money.
I even did an analysis that if someone had invested for a continuous period of 10 years anytime in the past 30 years and started redeeming over the past one year, then his/her returns would have been superior to fixed-income returns. All the observations were based on the Sensex returns. If we consider dividend-adjusted returns or Sensex TRI, the returns would have been higher by about 2 per cent.