Should investors abandon equities for good?
Indian Mutual Fund
Things are really bleak. Most investors haven't made any
money in the past five years from the market. That is why it is very difficult
to convince them about the long-term prospects of equity at the
moment," says the head of a large mutual fund in
a rare moment of candour.
"If they are willing to listen, I can still try to convince them that the
current trend is an exception, not the norm. Probably we are witnessing one of
the darkest periods in history," he adds.
There are many market participants - investment consultants, mutual fund
officials and distributors, financial planners and so on - who share his bleak
view.
The trouble is the situation is partly their creation. Not long ago, the same
people were telling investors that long term means three years in the market.
And they would also add in the same breath that stocks would beat all other
asset classes in the long term.
Investors interpreted the message like this: if you invest in stocks for three
years, you never lose money. In fact, you make a pot of gold.
However, things have changed. Investors are not so naive anymore. They have
seen that their investments haven't returned anything in the last few years. As
for the experts, they can't offer the same lines anymore to the harried
investors who have lost or at best made single-digit returns from the market in
the "long term".
Worse, some of these investors are not even ready to listen to any amount of
reasoning. They have mostly made up their mind that they are better off with
conventional investment avenues like bank deposits, bonds and so on. They have
already parted company with the stock market
or are in the process of doing so.
The trend was in the making for a long time, confirmed by outflows from mutual
fund schemes and the lower number of systematic
investment plans (SIPs) in the recent past.
"Yes, we face similar questions. But I try to tell them that they are
speaking with the benefit of hindsight. But we didn't know at that time that the
stock market would behave this way or the bank FDs and bonds would give this
kind of returns," says Suresh Sadagopan, founder, Ladder7 Financial
Advisories.
"Despite so many point-to-point comparisons doing the rounds about
underperformance of equity, long-term historical data proves that equity beats
all other asset classes. So the theory that you should take the stock market
route to meet your long-term goals still stands," he adds.
How long is 'long term'?
That brings us to the million dollar question that investors are asking the
so-called experts: How long is "long term".
"I believe five years can be counted as long term, even in the current
scenario. I try to make them understand that they shouldn't panic at the
current situation because this is highly unusual. Typically, we see the Indian
stock market moving cyclically every three years," says Hemant Rustagi,
CEO, Wiseinvest, a wealth
management firm.
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'I made my money by selling too soon.'
Website: http://indianmutualfund.co.cc/
Blog:http://indianmutualfund.wordpress.com/
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