Category Archives: Mutual Funds

Stay the course, Equities will deliver

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Greetings from PenguWIN:

PenguWIN wishes you a wonderful Vinayagar Chaturthi !!!

Greetings

There is a sense of negativity in the market with investors doubting whether Indian Equities as an asset class has lost its mojo. Returns from lumpsum investments done 3 years ago, SIPs that are 4 to 5 years old are close to zero or even negative.

Will Indian Equities Deliver? The answer is a resounding “Yes”, Stay the course and Equities will deliver. As long as businesses thrive and make profits (Automobile sector woes are a passing phenomenon), you can be rest assured that equity investments will be able to deliver higher returns than any other asset class as picturised below.

Instead of being verbose I have attached charts based on actual data that will help increase your confidence level and conviction in equity. I have picked funds that have a minimum of 10 years history and not the best performers (to make the charts look better)

Highlights

  • 10 Jan 2008 was the all-time high reached by Sensex – 21206. Investment done at this point as Lumpsum is depicted. On 27 Oct 2008 Sensex reached a low of 7697. i.e. 64% down from high on 10 Jan 2008
  • Lumpsum investment of 1 Lakh on 4 Jul 2014 and 10,000/- SIP per month starting Jul 2014
  • Advancing the SIP start date (10K per month) from Jan 2013 instead of Jul 2014.

“When there’s nothing clever to do, it’s a mistake to try to be clever.” Howard Mark

<Blog # PenguWIN 1070 – Stay the course, Equities will deliver>

Navigating Tough Times in Stock Market

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Greetings from PenguWIN:

Most people dislike uncertainty and change. But resilience to these characteristics is what makes a successful investor in Stock Markets.

Reminiscing couple of Buffets Quotes

The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.

Successful investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant”

Yes, things are easier said than done. After seeing returns slowly move up and cross 10% and even close to 20% for investors in the past 5 years (depends on entry point), going down to less than 10% is difficult to digest.

So, what can we do?

  1. Don’t lose sleep by looking at returns on a continuous basis which is dependent on the market and fund manager. Even if we change the fund, there is every chance that the earlier fund manager will do a course correction as everyone makes mistakes, while the new fund might go into a bad phase.
  2. Markets are influenced by too many factors, some logical. Political changes, Foreign Portfolio Investor (FPI) flows, Finance and Commerce ministry policies, Budget and Taxation, GDP, Inflation, sectoral issues (Coal, NBFC) and the list goes on. Again, not in our control.
  3. Time in the market is what is in our control. It has been proven across all markets that consistency of returns increases by time “n”. Also, there is no other legally investable asset class that can match equity returns and it has been proven time and again. If equity returns move down to 12% then the other asset classes will be down further by 4-5%, i.e. 7 to 8% max.
  4. Look at pure equity investments only for financial goals that are 5 years plus in horizon. Once we do that checking whether it has gone down or up in year 3 or 4 does not make sense. Also, given the criticality of a goal, whether negotiable or non-negotiable, do proper planning so that a correction in the last year of the goal erodes your corpus making the goal unviable. If it’s negotiable, then you have the luxury of postponing the goal until you reach the desired corpus
  5. Conviction in equity investing. Every time when the market tanks if you start doubting whether you made a wrong choice of asset class there is no end your misery. Typically one review per year is good enough. If your proportionate allocation to equity is significant, then once in 6 months is fine.

<Blog # PenguWIN 1069 – Navigating Tough Times in Stock Market>

Have you accounted for Lifestyle Inflation?

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Greetings from PenguWIN:

On analysing the portfolios of large number of investors, I find that that once they start their Systematic Investments (SIPs, STPs) to build a corpus, with or without specific goals, there is a tendency to feel that their personal finance is in place. Specifically, when SIPs are started in equity funds, investors feel that it’s the universal panacea for all their financial needs.

Let me explain it further with an anecdote. Vikram, aged 25, is a fresher in software field, with a monthly salary of Rs. 35,000. He is keen to buy a Maruti Swift that costs about 7 lakhs. He does not want to take a car loan and wants to fund it by accumulating a corpus through equity funds, with a 5-year time period in mind. He shortlists 2 funds to start SIPs worth 6000/- using an online SIP planner (there is no dearth of such tools today). Vikram pursues this goal meticulously and accumulates the money required in 4.5 years (thanks to the favourable market condition), 6 months ahead of his planned date.

His salary has grown over a period of time to over a lakh/month and he manages a team in his organization. He is happy that he has achieved his first milestone of buying a big-ticket item. When he shares this news with his peers and friends, they don’t seem to be excited like him and few tell him candidly that he should to buying a 10 lakhs+ Car (Honda City, Verna,  Vento) or atleast a compact sedan (Amaze, Ameo, Dzire), if he is not comfortable with a 10L+ car. Vikram is upset that his first major accomplishment has become insipid. 

Another person Veda, buys a 2BHK apartment, without sizing it properly or not thinking atleast 10 years ahead (happens to many of us). He repents later that his house is a atleast a room short, as he had planned it based on his financial situation (affordability), early in his career. When he can afford, the prices have already skyrocketed and you can’t just pay an incremental amount for the 3rd bedroom, unless you own an independent house, which is becoming rarity

So, what went wrong in Vikram and Veda’s case?

Both Vikram and Veda did not factor in Lifestyle Inflation or what becomes necessities at a later point in time.

<Blog # PenguWIN 1067– Have you Accounted for LifeStyle Inflation>