Markets in turmoil, but stay invested if you want to get handsome returns
Ashwin Patni, Head Products and Fund Manager, Axis Asset Management Company agreed that equities are a long term asset class. "Investing systematically can reduce the risks of timing the markets and playing a long term investment cycle, thus reaping the true rewards of equity investments," he said.
Thane-based Amol Bhosekar, 43, is a pharmaceutical research professional. He started investing in mutual funds through systematic investment plans (SIPs) in 2008. Until then, his investments were in conventional instruments like bank fixed deposits and insurance policies, from which he was earning returns in the range of 7% to 8%. "At one point of time, I realised these returns will not help me fulfill my financial goals," he said.
In 2008, he started investing between Rs 5,000 and Rs 7,000 per month and increased the amount gradually. By August 2018, his monthly investments in MFs had increased to Rs 35,000. September onwards he increased this amount by Rs 15,000 and currently he invests Rs 50,000 in different MF schemes, every month, out of his salary of Rs 2 lakh. Bhosekar believes that at least 30% of one's monthly income should go towards investments.
"Slaried people don't have money in bulk for meeting contingencies. That is why they can opt for SIP for investing. If you want to benefit from SIPs, you should stay invested at least for three years. And if you want to get handsome returns then stay invested for 10 to 15 years," he said.
Besides, getting professional advice from Chitnis Financial Planners, he reads a lot about personal finance in books, magazines, newspapers and on the internet. "It is better to learn your finances than to depend fully on advisors. After all, it is your own money," he said. He uses calculators available on websites to calculate the cost of financial goals in future. About his strategy he said: "Always link at least one financial goal with your MF scheme."
Bhosekar's goals are securing his daughter's education and marriage. His tips for being an ace investor in MF include: one, choosing right financial adviser and two, selecting a good set of MF schemes.
"You can earn in the range of 12% to 15% if you pick the right MF and stay invested in it for long time," he added.
Why investors must not stop SIPs
Bhosekar's expectations can be proved by numbers, as Milind Chitnis, founder of Chitnis Financial Planners explained. Suppose an investor was making a monthly SIP of Rs 9,000 for nine months, from January to September 2008. In September 2008, his investment was Rs 90,000 and the gain was Rs 82,000, as equity markets were down. He would have had to bear a loss of Rs 8,000. If the investor had stopped the SIP and looked for "safer" avenues; say bank FDs, PPF, NPS or KVP, by September 2018 he would have got Rs 3,20,000 as returns.
But if the same investor would have continued investing in SIPs, he would have invested Rs 12,90,000 by now and got Rs 31,78,000 returns. This is the reason why investors should never stop SIPs, Chitnis he said. In fact, low markets are a boom period for SIP investors, as they can buy their units at lower prices," he said.
Ashwin Patni, Head Products and Fund Manager, Axis Asset Management Company agreed that equities are a long term asset class. "Investing systematically can reduce the risks of timing the markets and playing a long term investment cycle, thus reaping the true rewards of equity investments," he said. As against this, traditional savings instruments provide a fixed rate of return, are tax inefficient and don't account for the effects of inflation.
G Pradeepkumar, CEO, Union Asset Management Company also has the same advice for investors. Once you pick good schemes and put in place SIPs, you should stick to these plans. "Never start investing randomly. Increase SIPs when the markets are down as you will get cheaper units. And to get full benefits, keep on investing for at least five years," he said.
Loss can be recouped
Fifty-five year old Vijay Zope, a medical practitioner based in Mumbai, lost Rs 20-25 lakh in the aftermath of the stock market scams involving brokers Harshad Mehta and Ketan Parekh. Before he fully switched to SIPs, Zope was an active investor in direct equity market. For the past 35 years, he has seen markets peaking new highs and falling to record lows.
Now, he has chosen different types of MFs for investing money. Presently, he invests around Rs 50,000 in MFs every month using SIPs. He started his SIP investments around 2001 and within three to four years recovered the money he lost in the stock market.
Zope is also a firm believer that for an individual investor, MF investment, through SIPs is the best option. "It is difficult for an individual to track the live equity market every day. Even big names in the market can't do that with an ease," he said.
For an individual investor, there is no need to press the panic button when the markets are down. In fact, he suggests people should invest more when the markets are in turmoil.
Lack of planning can hurt returns
Fifty-year old Mahesh Vaknalli works in a private company in Mumbai. He started investing in stocks in early 90s, when he started working. His market investments were not properly planned and that caused him a loss of Rs 1 lakh. He blames the loss on the lack of "proper planning" and the absence of a good "philosophical friend-cum-investment adviser".
"As an investor you should ensure that your money does not get drained and you get an assured return," he said. So, what is an assured return? "It is something where your money is not lost and your primary capital is intact," he said.
During his early days of investing, Vaknalli would invest in traditional investment tools. His favourite picks were FDs, recurring deposits, recurring cumulative deposits etc. In 2003, he got introduced to MFs and SIPs, through his fried. Since then, there was no looking back. In the beginning, Vankalli would set aside less than 5% of his monthly salary for MF investments. At that point of time it was about Rs 2,000 to Rs 3,000 per month. Vankalli's advice to new investors is to start with a basic minimum amount. They should not get bogged down by ups and downs of the market.
He continued with his investments even during the global financial crisis of 2008. Even today, he stays invested despite markets being in a turmoil. For him, "notional loss" and "temporary setback" are meaningless.
"I consider MF an institution. The whole mechanism of MFs offered me various solutions; short term, medium term and long term. They helped me in fulfilling my specific goals and chalking out my retirement plans," he said.
Watch this Zee Business video
Today, Vankalli has close to 10-15 different MFs in his kitty. "Now I invest around Rs 75,000-80,000 every month in MF. That is roughly 25% of my monthly salary." When asked what it takes to be a successful investor? He said, "It is important for you to have a philosopher-cum-fried-cum- adviser by your side, always."
Source: DNA Money