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Associate Partners

Kotak Mutual Fund
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Coming soon: An equity market rally that everyone missed

Almost 18 percent return over a five-year period is not bad at all. Can such a performance qualify to be called a bull market? If that is the case, did we all miss this rally?, asks Amit Trivedi of Karmayog Knowledge Academy.

October 21, 2013 / 03:43 PM IST

Amit Trivedi
Karmayog Knowledge Academy

This Diwali would be an interesting period to read the fact sheets of mutual fund companies. This is the period when the 5-year performance of various equity funds would look very strong.

Assuming the index stays at the current levels (At the time of writing this, the Nifty Total Return Index is at 8,048), it would be up from 31st October 2008 levels (index at 3,539) by around 127 percent in absolute terms or by 17.85 percent p.a. compounded annually.

Also read: Asia's commercial property deals set for record year

Almost 18 percent return over a five-year period is not bad at all. It would be Diwali for an investor. Can such a performance qualify to be called a bull market? If that is the case, did we all miss this rally?

Let us look at the journey of the last few years, looking at the index numbers.

We looked at CNX Nifty (Total Returns) Index.

The index is a total return index and calculated by adding back the dividends. Thus, it accounts for both capital appreciation as well as the dividends paid by companies. This is similar to being invested in growth plan of an equity mutual fund scheme, where all the dividends are used for further investment and not paid out to the investors.

The index is currently up by 127 percent from the levels of October 31, 2008. However, in-between, it went up higher than the current level. On November 5, 2010, it was up around 128 percent. This is interesting. Look at the data points here:


Index level












The above data indicates that the Nifty TRI went up by 123 percent in just over a year and is at almost the same level today. So, all the returns came in the first year of this 5-year period. The market has this surprising ability to surprise everyone, time and again.

In October 2008, people had no faith in the market’s ability to move up and it went up. After that, it has stayed there for four years. If someone had invested on 31st October 2008, the investment would have appreciated at almost 18 percent p.a.

However, when you look at the index movement for the whole period, it would have been very difficult to have invested exactly at that time and then stayed through – both in light of such a rise in the very first year and then a sideways movement for four long years.

That is the nature of equity markets – the returns are not linear – they often come in lumps. Your patience would be tested… and tested for long.
Once we accept that the returns are going to be lumpy, there are three roads we can take to equity investing.

  • The first is to completely stay away since this is too risky.
  • The second road is to try and find the time to enter and exit.
  • The third is to accept the one’s inability to time the market profitably and stay invested for long periods.

Between the three, the first exposes one to the risk of getting poor returns and being unable to reach the financial goals. The second is too risky and that there are no established rules one can follow to be profitable consistently.

In fact, by the time one finds a rule, the same loses the ability to deliver superior returns consistently – net of taxes, expenses and efforts. The third exposes one to long periods of poor returns, like what we saw in the last four years.

One of the better ways to handle this is to start with one’s own requirements. Why is one investing? Generally, the answer to this is that there are some large expenses to be met in future or that there are going to be some regular expenses in future without commensurate income to support those.

Having done that, one may look into the mirror to understand how much risk can one handle – the risk here being not getting the money when required to meet the expenses mentioned earlier.

Keep focus on that risk and try to manage it with your investments. Investment advisers can help you with this.

A good adviser would help you in two ways:

(1) Helping you articulate your financial needs or goals and understanding your risk appetite,

(2) Putting together an investment plan based on the above

Diwali is the festival of Goddess Lakshmi – the goddess of wealth. Wish your prayers are answered this Diwali.

Wish you happy festival days ahead!

The author is proprietor of Karmayog Knowledge Academy.

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