Skip to main content

Long-term investment = zero loss

 

Equity has an image of being a very risky investment vehicle that somehow works in the long term. We looked at past data and found startling results. Your chances of incurring losses goes down as your holding period goes up. If you held investment in the Sensex for at least 14 years, beginning any date in the past 30 years, you've not lost any money.

Numbers for long term

We ran a simple, but arduous test. We took Sensex figures (closing end-of-day figures) since its inception on 3 April 1979. We assumed you invested in it (taking the Sensex closing figures as the net asset values, or NAVs, of a mutual fund scheme) for a period of one year on any day between 3 April 1979 and till as recent as possible. At the end, we took an account of the number of one-year time periods where you made money and the number of one-year time periods where you lose money. Next, we repeated the same exercise but kept on increasing our holding period by a year till 30 years. So on the lower end, while the holding period is one-year, on the farther end we have also assumed that you invest for a time period of 30 years, anytime between April 1979 and till as recent as possible. What we found was:

• The lesser your time horizon, the more are your chances of making losses. For instance, if you had invested for one year, you would have made losses 2,026 times out of total of 6,784 one-year time periods between 1979 and till as recent as possible or 30% of the times

• On the other hand, as you increase your time horizon, your chances of making losses go down. For instance, investing for seven years or 11 years would have dropped your chances of making losses to 7% and 4%, respectively. In other words, your chances of making money go up to 93% and 96%, respectively

• Here's the clincher: if you had invested in Sensex, India's oldest stock market index, for at least 14 years, in any 14-year period—since its inception in 1979 till as recent as possible—you would not have lost any money. Out of a total of 4,189 14-year time periods since Sensex's inception, you would have made money in all instances

• Although the average return between investing in any 14-year time period, right up to, say, 20-year time periods swings between 13.78% and 14.75% on average, the minimum return that you earn goes up as your investment horizon goes up

• If you invest for 30 years, the minimum you would have earned was 16% compared with a maximum of 18.22%

Sticking for long…

Guaranteed returns over a 14-year time period sounds good on paper, but do we have the patience to stick around for 14 years? As per March 2010-end data available with the Association of Mutual Funds of India (Amfi), 62.57% of investor folios stuck around for at least two years. Amfi does not give a break-up of the time periods higher than two years for investments in mutual funds. Though the latest figure has gone up from 50.51% at the end of September 2009 and 46.44% at the end of March 2009. Strangely, 4.54% of the total equity assets from retail investors go out within a month. This has doubled since September 2009.

Though fund managers are finding it hard to convince investors to stick around for as low as, even, five years, sticking around for the long term actually makes sense because the longer you are invested the better would be your returns.

Chandresh Nigam, head (investments), Axis Asset Management Co. Ltd says: "While people may not be perceptive about long term, they can at least start planning for retirement if they're 30 years or less." In other words, says Nigam, investors in their 30s or even less can put away a small portion of their corpus for retirement, which would be around 20-30 years away.

Nigam feels the Indian economy is poised to grow well over the next 15-20 years as companies are expected to earn 12-15% per annum, on average. "Twenty years back, we had to wait endlessly for a telephone connection and had black and white television sets. Today, we have colour television sets, mobile phones and it's relatively easier to go abroad than what it was, say, 20 years back," says
Nilesh Shah, deputy chief executive officer, ICICI Prudential Asset Management Co. Ltd, as examples of how India has progressed. Shah believes that today India may not have achieved as much as desired but "we have come a long way". There is no reason why, says Shah, we can't go further.

…using the index route

To put away a portion of your corpus for very long time periods requires conviction in equity scrips or funds that you have invested in. However, spotting the right fund that you know you can stick around for 14-15 years or more is not an easy task. "The number of fund managers that have been around in the Indian MF industry for such long periods are very few. You can count them on your finger tips. When fund managers shift, it becomes tough to invest your money with them for such long periods," says
Krishnamurthy Vijayan, CEO, IDBI Asset Management Co. Ltd. Vijayan believes that passively managed funds, such as index funds, are the best way to invest your money for long periods. "Although in the past, active fund managers have outperformed the broad indices, the rate of success has not been very huge. But if you don't want to run the risk of a fund manager managing your money, you can diversify in index funds," adds Nigam. Pune-based financial planner, Veer Sardesai says: "To further reduce volatility, invest through a systematic investment plan."

 

Popular posts from this blog

ICICI Pru Mutual Fund Dividend

ICICI Prudential Mutual Fund has announced dividend under the following schemes: Scheme Dividend ( Rs /unit) ICICI Pru Capital Protection Oriented Ser V Plan B-D 0.03611325 ICICI Pru Capital Protection Oriented Ser V Plan B Direct-D 0.03611325 ICICI Pru Balanced Advantage Direct-DM 0.06 The record date has been fixed as February 08, 2017. ------------------------------ ------ Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 4 Tax Saver Mutual Funds for 2017 - 2018 Best 4 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. BNP Paribas Long Term Equity Fund Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds  Application Forms For further information contact  SaveTaxGetRich on 94 8300 8300 ------------------------------ ------ Leave y...

What is Financial Freedom?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)     There were many things common between our Freedom fighters. All had the Single vision (Free India), common goal (independence) and had a disciplined and focused approach. They were ready to do anything and everything and had made so many sacrifices to see India free . But the road to freedom was not easy .They had faced lot many hardships, went to jail so many times and even confronted physical and mental torture from the British. There was one more thing which proved to be an advantage to our fighters that most of them were professional lawyers. The knowledge of legal issues and its impact on our country at large has helped them counter various bills and proposed new laws by the then government. It is due to their continuous effort that we are able to achieve the goal of Independent Indi...

Hidden Bank Fees

  What Banks Hide From Customers Imagine after a peaceful and exciting holiday you receive your bank statement with steep charges. You then rush to your bank and start confronting staff members and to your dismay, you come to know that the high end debit card was charged very heavily. Wouldn't this cause damage to your finances? So remember, the world outside is full of deceptive and double cheating people. Unethical practices are always used by company sales person in order to meet the target. Credit card companies, mutual funds and bank institutions always play dirty tricks to lure customers and the practices are rampant. So here's how you should be careful while dealing with your banks: High End Debit Card Charges While opening an account with a bank you opt for a debit card with minimal charges. But later on when you upgrade your card and opt for high end debit card the annual charge rise by a good amount. Though such a card has slew of features but it all comes at a high ...

Partial withdrawal from PPF

  Public Provident Fund (PPF) account has a lock in period   If you opened a PPF account to meet your retirement needs,, think twice about withdrawing from this fund before retirement. But provided it's an emergency here are the rules. Public Provident Fund (PPF) account has a lock in period before which you cannot withdraw your money.   The partial withdrawal is allowed after the completion of 6 financial years . This means that you will be allowed a partial withdrawal from 1 April 2017. The maximum partial withdrawal allowed is the least of the following: 50 percent of the account balance at the end of fourth financial year, 31 March 15 50 percent of the account balance of the end of previous financial year, 31 March 17.   There's a loan option available on your PPF account between the fourth and the sixth financial year. You can obtain a loan of up to 25 per cent of the balance in your account. However, this will attract interest of 2 percent more than the prevailing ...

Updating a minor PAN card upon becoming adults

  Updating a minor's PAN card once they become adults A PAN card issued in the name of a minor does not contain the minor's photograph or signature, and therefore, cannot be used as a valid proof of identity. Once a minor PAN card holder turns 18, the relevant changes must be made in the PAN records. A new card is then issued bearing a photograph and signature. Application The applicant is required to fill up the "Request for new PAN card andor changes or correction in PAN data" form. The form can be filled up online by accessing NSDL's Tax Information Network website and clicking on the online PAN application tab. Information The applicant must mention the existing PAN number in the application and check the `photo mismatch' and `signature mismatch' boxes, and submit the online form. The form must also be printed out, signed by the applicant, and submitted along with two photographs. Documents Identity and address proof in the form of a copy of the app...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now