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When investment returns make a sharp change

The details of many issues are lost among the numbers that are released at various time intervals. This is true especially when it comes to analysing returns and the sharp fluctuations in them when the markets are volatile.

business Updated: Oct 19, 2008 21:28 IST

The details of many issues are lost among the numbers that are released at various time intervals. This is true especially when it comes to analysing returns and the sharp fluctuations in them when the markets are volatile. During good times or bad, the returns can show extremely strange situations. However it is important to keep the long-term nature of the change in mind instead of panicking.

Sharp gains and losses
Consider the case with equities where an investor usually witnesses sharp gains or losses. In this situation the comparisons have to be seen carefully as a cursory look can paint a very dramatic picture. When the going is good the returns from equities will show a good rise and when the rise is for a couple of years, most figures over several years will look good. The reverse is true when it comes to a fall because suddenly all the returns will look discouraging.

Current position
Today, most of the equities are showing a loss including equity oriented mutual funds. Thus if one looks at the returns then the figure here becomes less than the returns shown by the fixed deposits. This becomes true over even a slightly longer-term horizon of 2-3 years because of the sharp fall in the markets. However this does not make the investment a bad one because after some time the situation could very well turn. Thus it is important to understand what is giving rise to this kind of position and then analyse the situation accordingly.

Prediction difficult
The investor should understand that predicting anything beforehand is very difficult because nobody knows what is going to happen. In such a situation it would be better if the investor manages to have a plan and follows it comprehensively as this will ensure that they are on the right track. The investor will also then have little to worry in terms of outguessing the next move and the position on this front. They should avoid playing the prediction game and at the same time realise how the movements in the markets are impacting the figures and their interpretation of the same.