I had invested in an equity scheme on August 1 this year. The day before yesterday the markets rose by 45 points but the funds NAV was down by 0.25 per cent. I made another investment, this time in HDFC Equity and there is already a gain of 4.18 per cent. Should I invest more in this fund?
Something tells us that you are new to mutual fund investing and are therefore perplexed by how your funds' NAVs are jumping around. However, what's happening to your funds is quite normal. One tends to say that 'the markets rose 45 points' but actually it's an index-usually the Sensex or the Nifty-that we are talking about. These two indices are weighted averages of 30 and 50 large stocks respectively and they are generally taken to represent the market as a whole. On most days, there are many stocks-even among those that make up the indices, whose individual price changes are quite different from the indices. Also, the indices are heavily weighted towards just a handful of stocks. As much as 48.53 per cent of the Sensex is made up of just Reliance Industries, Infosys, Hindustan Lever, State Bank of India and ITC. There are days when these index heavyweights move in one direction and the broad market moves in another. Thus, depending on the actual portfolio of a fund, its NAV may or may not move in tandem with an index.
The most important point to imbibe about equity fund investing is that it is for the long-term. Stocks realise their true potential over long periods of time (measured in several years) and it is this benefit that equity mutual funds can bring to investors. Equities are also risky and the 4 per cent gain you are talking about can just as quickly turn into a 4 per cent loss. But over long periods of time regular investing combined with regular re-balancing of your investments can deliver superior returns as compared to any other asset class.