Expert advice

Dec 09, 2013,16.38 IST

How long should long-term be?

Equities as an asset class is generally looked up on as something that is way too risky, and holds chances of you losing your money. Some people look at equity like gambling. The wild market swings are making them uncomfortable about the returns they may earn along with the risk of losing their money.

But the question is why should the investors panic in these short term market swings when they know that equity investments should be planned for long term? Generally it is seen that the investment objective of equity funds states that they are meant for ‘long term’ capital appreciation.

The answer is the dilemma faced by investors to sort out - How long really is the “long term”?

We ran a calculation of the S&P BSE SENSEX values starting from its launch year till date (31st December, 1979 – 29th November, 2013), here is what the numbers look like.

Investment tenure for 34 years 

No of periods observed 

No. of times S&P BSE Sensex gave negative returns in 34 years

1 yr

34

9

3 yrs

32

4

5 yrs

30

3

7 yrs

28

1

10 yrs

25

0

12 yrs

23

0

15 yrs

20

0

20 yrs

15

0

25 yrs

10

0


 

 

 

 

 

 

 

 

 

 

*Data Source: Sensex values from Bloomberg, data compilation: Quantum AMC

Past performance may or may not sustain in future

Understanding the Table:

As per the table if one had invested for 1 year from 1st January, 1980 to 31st December, 1980 and continued such 1 year period investment for the next 33 years by investing on 1st Jan every year and redeeming on 31st December, of that year; every year during the 34 years’ time frame sensex gave negative returns 9 times. Similarly you can read for 3years, 5 years and so on.

However, if investment had been for 10 year i.e. from 1st January, 1980 to 31st December, 1989 and continued such investment every year for 10 year period, according to the table sensex did not give any negative returns.  .

While it is very important to balance out your portfolio and spread your investments across asset classes, one can look at Debt and gold as an asset class to park their investments. Moreover when it comes to equities,  to stay invested for 20-25 years in equities might be unthinkable for some at the first instant, it is quite a practical period if you consider early planning for goals like retirement, child’s education & marriage etc. In fact those who start planning from the time they start earning would have a good 20-35 year period to accumulate for these goals before they begin to pull out from investments.

The biggest mistake investors make is to halt investments in equities when stock markets are falling and withdraw whatever corpus has been created as soon as stock markets seem to have recovered. To tackle this tendency one needs to link investments to goals and not to stock market levels.

Therefore, if you have future financial goals like planning for retirement, child’s education, their marriage etc., you can have some exposure to equities and have a long term horizon while investing and not exiting from your investments abruptly to book quick profits in the stock market. Moreover you should consult your financial advisor to guide with your investment needs.

Disclaimer:

Mutual fund investments are subject to market risks read all scheme related documents carefully. Please visit – www.QuantumMF.com to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

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