Why It Is Important To Remain Invested In Equity

Equity in Mutual Funds

The above-shown graph is a comparative representation of the performance of three asset classes. i.e., equity (BSE 100 index), Fixed Deposits and Gold. As it is evident from the above graph equity is the highest return generator in the last 20 years. It has delivered more than twice the returns as compared to FD and gold. Yes, Equity is a risky asset class and there may be several down-hills in equity markets. 2002 dot com bubble and the subprime crisis of 2008 are 2 good examples. However, it has been a proven fact that in the successive aftermath of the crisis, markets bounce back. Indian stocks markets recovered 98% during the period of 2003 to 2004. And post- 2008 crisis, the market again gained 98% and has delivered 246% since then.

Every good investment advisor sermons – “have patience and observe things unfold”. Equity investment is a classic asset class where patience is perhaps more important than knowledge and capital.

There are certain abiding principles in equity investing:

Disciplinary Orientation: It inculcates a sense of responsible discipline while attuning to one’s financial plans for long-term goals. Relentless investment is perhaps one of the critical avenues of wealth creation.

Compounding: Quoting Albert Einstein “Compound interest is the eighth wonder of the world. He who understands it earns it...he who doesn’t...pays it”. So, the mathematical sermon is stay invested since it renders in compounding results.

Full Market Cycle: Remember your all-weather friend who always stays with you whatever be the conditions are. Same is with the equity investment; remain attuned to it for observing full-market cycle. It’s a fact - good schemes in the long run always deliver positive returns.

Taxation:Long-term capital gains accrued from the transfer of units of an ‘equity based’ mutual fund is exempted from the income tax. Investments in equity-linked-saving-schemes from mutual fund houses are also exempted under section 80(C) of the Income Tax Act.

The Equity Mutual Funds:Long-term Investment - It is one of the best ways to invest money for retail investors who are interested to gain from long-term investments. Systematic Investment Plan is also one such great model of long-term investment, especially for the retail investor.

Mindset:It’s been long ago said that ‘battles are not won by the army but mind.' So, remain focused and follow the basics when the outlook is grimmer. To quote Jeremy Seigel “Volatility scares enough people out of the market to generate superior returns for those who stay in!”