- Dr. Virendra Tatake
In the year 2020, Indian stock market went through a period of stagnation, volatility, recession and boom. In fact, the year started well and mutual fund investors were investing regularly but in March 2020, a sudden lockdown started and its reflections were felt in the stock market and mutual fund investments. These market fluctuations have given mutual fund investors the next four important lessons
Lesson No 1 : Have a Long-Term Vision
The year 2020 proved once again that investing in equity funds offers good returns in the long run. Even if the return on such funds fail in short run , long-term investment goals should be kept in mind. HDFC Equity Fund , for example, current market value of Rs 10 lakh invested in this fund 20 years ago is around Rs 3.5 crore. Launched in 1995, this fund has given an average annual return of 17% over the last 25 years. Midcap funds in equity funds are considered to be a bit risky, but the current market value of Rs 10 lakh invested in Nippon Growth Fund , a midcap fund twenty years ago, is around Rs 5.5 crore. Launched in 1995, this fund has given an average annual return of 21% over the last 25 years. The NAV (market price) of these funds had gone down in the first few days of the lockdown of the year 2020 but it benefited the investors who were not distracted.
Lesson No 2 : Consider a short-term recession as an opportunity.
Between March and May 2020, the lockdown had an adverse effect on the economy and the recession was everywhere. The Nifty and the Sensex were also down. This created a huge opportunity to invest in index funds investing in stocks of companies included in the index. At that time, investors who invested in such funds received excellent returns in a very short period of time. For example, in HDFC Index Fund (Nifty Plan), the market value of an investor who invested Rs 10 lakh in April 2020 has increased to Rs 16 lakh in December 2020 ( within a period of nine months only ).
Lesson No 3 : Maintain Balance of Investment
The inclusion of equity funds in your portfolio, balanced fund, debt fund and gold fund maintains the overall balance of investments. At a time when the stock market was collapsing, such funds were supporting investors with satisfactory returns. Especially when interest rates on bank term deposits were falling, these funds gave relatively satisfactory returns. Gold funds, on the other hand, have done well this year. The portfolios of the investors who had these funds in their pockets were less affected by the stock market fluctuations.
Lesson No 4: Avoid making emotional decisions
Some investors in mutual funds have experienced this year that recent emotional decisions affect their portfolio adversely. Frightened by the collapse of the market, such investors sold their investments between March-April 2020. Such investors lost the opportunity of the later boom in the market. On the other hand, many new investors have been added to mutual fund investments this year. According to data released by AMFI, the total assets of the Indian mutual fund business reached a level of Rs 30 lakh crore in November 2020. In 2010, the assets were worth just Rs 7 lakh crore. In the last ten years, it has increased a whopping four and a half times.
There is no doubt that mutual fund investing will benefit the investor who adheres to these four lessons in the coming year as well.
The author is Director at Indira Global Business School
( Reference of article in Marathi published in Sakal - https://www.esakal.com/arthavishwa/look-back-2020-dr-virendra-tatke-article-about-mutual-fund-investors-tips-390566 )
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