Want to strike rich with equity markets? Trust long term equity investing

The equity markets are buoyant and have been making new highs lately. Retail investors have been actively investing in the markets largely through Diversified equity and balanced funds.
Systematic investment plans (SIPs) are the preferred route for investing and have been increasing every month, currently standing at Rs 5,500 crore a month.
In addition, lump sum flows have also been robust over the last year. In fact, lately strong domestic flows have acted as a counterbalance to volatile foreign flows.
Equity returns have been spectacular over the last few years, which has given confidence for investors to enter the markets even as they tread into higher valuations.
One of the concerns is that many of these investors have not seen a true bear market cycle and it is difficult to predict their reaction if the markets do correct sharply.
That is where investor education is a must to educate them towards treating equity as a long-term investment and the ability to stay patient through sharp equity drawdowns.
Let’s look at the historical performance of Indian stock indices. Sensex and Nifty have been the flagship indices for the Indian equity markets and have seen a huge appreciation through the years, but at the same time, there have been several sharp corrections.
For instance, had you invested just prior to the Harshad Mehta scam in 1992 or before the Global Credit Crisis in 2008, your investment would be down by 40-50% within a year!
Similarly, the market witnessed crashes during the Asian credit crisis in 97-98 and the dotcom crash in 2000-01. But, the markets did bounce back eventually and those who chose to stay invested reaped the benefits.
chart5
Let’s analyze the data above, if you had invested in equities with a 1-year investment horizon, there is a 1 in 3 chance that your returns would have been negative, which is not a great outcome.
Extend your holding period to 3 years and the chance of making negative returns is less than 1 in 5. As you kept extending the holding period, the lesser the chance of making a negative return on your investments.
For a 10-year holding period, the NIFTY has had a negligible number of periods with negative returns (only if invested just before the Harshad Mehta scam days of 1992).
In fact, had you invested in the NIFTY on any day in the last 20 years and held on to your investments for at least 7 years, there wouldn’t be a single period where you lost money. Most other indices displayed similar trends, including the more volatile midcap indices.
This truly displays that staying invested in the markets for longer periods, pays rich dividends, but you need to be patient.

Comments

Post a Comment

Popular posts from this blog

Top stocks in focus today: SBI, L&T, Bharat Fin, ONGC, Infosys, HDFC

Image
Ashok Leyland: Is looking at investing 4-5 bln rupees in its electric vehicle business over the next three to five years, Managing director Vinod Dasari said. Au Small Finance Bank: Has signed a three-year pact with Small Industries Development Bank of India to fund term  loan  proposals worth 2.5-20.0 mln rupees related to micro, small and medium enterprises. Bajaj Hindusthan Sugar: Board has approved the conversion of its  loan s from lenders into optionally convertible debentures or optionally convertible preference shares, under the Reserve Bank of India's scheme for sustainable structuring of stressed assets. Bharti Airtel: LPG subsidy recipients who had Airtel Payments Bank accounts were not getting their share of subsidy for the past few weeks, according to the Ministry of Petroleum and Natural Gas. Cadila Healthcare: Has received an approval from the US Food and Drug Administration to market Tamoxifen Citrate tablets USP in 10-mg, 20-mg strength. Cl
Read more

Live Stock Market Updates - Nifty, Sensex close to their morning highs; United Spirits gains by 16%

Image
Nifty and Sensex trading close to their morning highs as Pharma, FMCG and Auto Index pose strong gains. Pharma stocks up by 2.5%, lead by strong gains of Sun Pharma, Cipla, and Aurobindo Pharma, while Tata Motors lead the Auto Index. At 12:49 PM, the S&P BSE Sensex is trading at 33,276, up by 128 points, while NSE Nifty is trading at 10,355, up by 12 points. The BSE Mid-cap Index is trading up by 0.6% at 16,432 whereas BSE Small-cap Index is trading up by 0.58% at 17,356. Adani Ports, Sun Pharma, ITC, Bajaj Finance and Tata Motors are among the gainers, whereas YES Bank, Infratel, Bharti Airtel, Indian Oil and HPCL are losing steam on NSE. Some buying seen in Basic Materials, Healthcare, Industrials, Auto, Utilities, and Capital Goods,  while Energy, Telecom, Bank, and Oil & Gas sectors show weakness on the BSE. The INDIA VIX is down by 2.1% at 11.37. Out of 1,972 stocks traded on the NSE, 1,007 advanced, 633 declined, and 332 remained unchanged tod
Read more

Sensex, Nifty trade weak ahead of Gujarat exit polls; TCS, Wipro top losers

Image
Benchmark indices mildly recover after sharp fall, as investors eagerly awaited exit polls results later today after the end of second phase of Gujarat Assembly elections. The Sensex languished below the 33,000 level after skidding below that level in mid-morning trade. At 1:28 PM, the BSE Sensex was trading at 33,050, slipping 3 points, while the broader Nifty50 index was trading at 10,181, down 12 points. The selling pressure was broad-based, as the BSE Midcap Index fell 0.29% and the BSE Smallcap Index declined 0.28%. On the economy front, India's inflation based on the wholesale price index, stood at 3.93% for the month of November 2017, as compared to 3.59% for the previous month and 1.82% during the corresponding month of the previous year. Power, Consumer Durables, Utilities, IT and Industrial Index were the top losers on the BSE, while Pharma, Oil and Gas, Energy, Auto and Telecom were the top gainers. Capital goods stocks declined. BEML (-1.42%), Siemens (-1.18%), T
Read more