Download Tax Saving Mutual Fund Application Forms
Call 0 94 8300 8300 (India)
Retail investors in the stock markets are quite dismayed with the conditions. With the Bombay Stock Exchange Sensitive Index, or Sensex returning barely 3.13 per cent in the last five years, there is little money to be made in the markets.
No wonder, retail investors have either closed systematic investment plans (SIPs) or not renewed them or simply stopped making their monthly payments. According to data from the Securities and Exchange Board of India (Sebi), the number of folios as on July 2012 stood at 36.6 million. And the industry lost over 8,000 folios a day during this financial year. According to recent reports, the number of SIPs has hit a 16-month low.
A big reason for the exits was that retail investors felt making money in equity markets would be difficult. Therefore, they shifted to other investments such as bank fixed deposits.
But investors who have taken this step have lost some serious money. Say if you had started an SIP of ~5,000 per month in September 2007 in a large-cap fund like DSP BlackRock Top 100 equity, today you would be sitting on a corpus of ~3.56 lakh (as on July, 31).
Of this, your investments would be ~2.95 lakh and rest ~61,000 would be capital gains. The rate of return is 7.67 per cent per annum. And that too, tax fee as you have completed one year.
In comparison, debt would have returned six-eight per cent annually, but there is a tax on capital gains, 10 per cent without inflation indexation and 20 per cent with indexation. So, the returns would come down by another percentage point.
Gold exchange-traded funds (ETFs) are the only instrument that would have beaten these returns at 26 per cent annually, but the taxation is similar to debt. So, despite the slowdown, staying invested in an equity fund would have given reasonably decent returns. In fact, investing ~5,000 monthly in a slightly-aggressive fund – HDFC Equity Growth – a multi-cap fund, one would have earned 10.88 per cent annually.
The average inflation rate – wholesale price index – was at 7.2 per cent in the last five years whereas the average consumer price index has been 9.2 per cent in the same period. In other words, the rate of return from SIPs in good schemes would have beaten the inflation rate, in some cases, substantially.
On the other hand, say you got scared when the markets crashed in 2008-09 by 38 per cent and exited the SIP in March 2009, you would be sitting on a huge loss.
That is, if you exited the SIP in March 2009, your corpus would be ~75,940 in case of DSP BlackRock Top 100 equity scheme – down 25.14 per cent (on investment of ~95,000). Similarly, in case HDFC Equity Growth, the corpus would have suffered further – down by 32.18 per cent.
Looking at the year-on-year return for an equity investment can hurt. You should not invest in equity unless you have a definite time horizon for your investment, that is, at least more than five years. Otherwise you will not be prepared to wait out the volatile time period. While investing through SIPs in a rising market, people dont realise that every installment is buying lesser units of the scheme because the net asset values (NAVs) are high. In a falling market, however, investors will benefit more because they are getting more units at the same installment because of lower NAVs.
Happy Investing!!
We can help. Call 0 94 8300 8300 (India)
Leave your comment with mail ID and we will answer them
OR
You can write back to us at PrajnaCapital [at] Gmail [dot] Com
---------------------------------------------
Invest Mutual Funds Online
Download Mutual Fund Application Forms from all AMCs
Download Mutual Fund Application Forms
Best Performing Mutual Funds
- Largecap Funds Invest Online
- DSP BlackRock Top 100 Fund
- ICICI Prudential Focused Blue Chip Fund
- Birla Sun Life Front Line Equity Fund
- Large and Midcap Funds Invest Online
- ICICI Prudential Dynamic Plan
- HDFC Top 200 Fund
- UTI Dividend Yield Fund
- Mid and SmallCap Funds Invest Online
- Reliance Equity Opportunities Fund
- DSP BlackRock Small & Midcap Fund
- Sundaram Select Midcap
- IDFC Premier Equity Fund
- Small and MicroCap Funds Invest Online
- DSP BlackRock MicroCap Fund
- Sector Funds Invest Online
- Reliance Banking Fund
- Reliance Banking Fund
- Gold Mutual Funds Invest Online
- Relaince Gold Savings Fund
- ICICI Prudential Regular Gold Savings Fund
- HDFC Gold Fund
