Missed The Sensex Rally? Here’s Another Opportunity To Score Big     (17-Apr-2017 )

The S&P BSE Sensex delivered a CAGR (Compounded Average Growth Rate) of 11.44% over the last five years (as on April 14, 2017), while the Nifty Midcap 100 Index, a CAGR of 18.23%. Those who had invested in equity mutual funds over this period made bountiful gains — are proud of their decision — and those who missed the bus, or weren’t courageous to invest in equities are regretting it, and perhaps even envious of those who did.

In which category are you?

If you’re one of those who missed the bus, here’s another opportunity…


PersonalFN acknowledges the fact that the Indian equity market is at its peak, and one should buy low and sell high, a basic tenet of investing.

However, we have a sound reasoning and method for our suggestion. Here’s our viewpoint…

Nearly a decade ago, the S&P BSE Sensex hit the milestone of 20,000 points for the first time. Currently, the Sensex is near the 30,000 mark. So, had you invested a lump sum in the market a decade ago, you would be sitting on paltry returns — a CAGR of 4.14%. Pathetic isn’t it. Ironically, you would have earned a higher return if you had invested in a bank Fixed Deposit (FD).

From Market Peak to Market Peak: A Return of Just 4.14%

Data as on March 31, 2017 (Source: PersonalFN Research)

This is the peril of looking at returns at a point-to-point basis.

You need to invest the smart way and stagger your investments. In other words, it is best to invest regularly every month to take advantage of the market swings.

Equity mutual fund investors need to opt for a Systematic Investment Plan (SIP), through which they can invest a set amount every month, enjoy the benefit of rupee-cost averaging and compound money better to accomplish your financial goals.

So had you begun investing via a SIP at the market peak in January 2008, what would your returns be as on March 31, 2017?

Before we get into the returns delivered by equity-diversified schemes, let us first look at the returns delivered by major benchmark indices.

If you recollect, we calculated that a lump sum investment at the Sensex peak would have returned about 4%. But, had you invested in the Sensex (total return index) via a SIP on the 1st of every month, from January 2008 to March 2017, your investment would have grown at a compounded rate or XIRR (an excel function to calculate the annualised yield) of 11.25%. This means, if you would have invested Rs 5,000 each month across the 111-month period, your investment of Rs 5.55 lakh would have nearly doubled to Rs 9.50 lakh.

If you select the Nifty FF Midcap 100 index, your investments would have grown to as much as Rs 12.21 lakh, which translates in to an XIRR of 16.38%!!

Benefits Of Regular Investing

Investing via A SIP Can Generate Substantial Returns Even If You Start At the Market Peak

Index data of the Nifty FF Midcap 100 Index considered for the above calculations.
Data as on March 31, 2017 (Source: ACE MF, PersonalFN Research)

Looking at the chart given above, you probably got a hint about the returns generated by equity mutual funds.

Most of the better performing large-cap schemes returned an XIRR in excess of 14%. Look at the growth of an investment in the median equity diversified scheme that generated an XIRR of 15.61%.

Even An Average Performing Equity Fund Would Have Generated Double-Digit Returns

NAV of the median equity diversified scheme considered for the above calculations.
The scheme delivered an XIRR of 15.61%
Data as on March 31, 2017  (Source: ACE MF, PersonalFN Research)

The mid-and small-cap schemes generated an XIRR ranging between 17%-28%. To give you a sense of awe, had you invested in one micro-cap scheme, your Rs 5.5 lakh investment would now be worth Rs21.25 lakh (XIRR: 27.66%). Yes! A growth of nearly 4 times!

Even the worst mid-cap scheme in the category would have doubled your monthly investments to approximately Rs 13 lakh over the decade.

And assuming a bank FD returned 9% pa (6.22% post-tax), your Rs 5.5 lakh investment (Rs 5,000 per month) would have grown to just Rs 7.48 lakh.

So don’t get disheartened if you have not yet invested in equity funds. However, take a prudent investment decision in the interest of your long-term financial wellbeing. The above analysis makes it clear that even if you invest close to the market peak, there can be no harm. But you ought to adopt a sensible approach, rather than being swayed by exuberance and going gung-ho. If you take the SIP route, invest regularly from the market peak, and continued for the long term, you would be sitting on substantial gains.

Remember, investing in equity requires discipline, patience, and perseverance. If you are looking to make quick returns, then sadly you could end up burning a hole in your pocket.

You need to invest regularly, with a long-term outlook and in the best mutual fund schemes. Yes, picking the right scheme is equally important. In the above SIP analysis, the top equity funds delivered an XIRR in excess of 20%, however, the bottom few schemes had an XIRR under 10%. Therefore, you need to select the best schemes prudently.

Don’t approach a distributor or a bank relationship manager to identify the top mutual funds. They will most likely suggest funds that earn them a higher commission.

With hundreds of equity funds available, how do you pick the right ones for your portfolio? Indeed; you need access to unbiased research-backed guidance that helps you select the best equity mutual fund schemes.

Now's your chance to opt for PersonalFN's 'FundSelect' service. It is the simplest and potentially the best way to grow your portfolio value significantly! One of the most important characteristic of FundSelect service is, it helps you zero-in on the top-performing funds across varying market caps and investment styles - be it large-cap, mid-cap, multi-cap, value-based or balanced funds, along with highlights of the underperforming or average performing ones too.

With over 15 years’ experience in fund research, PersonalFN has established a methodology to select funds that beat the market by a whopping 70%! Don't miss this opportunity- Subscribe now to avail of special discounts.

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