Stay put and ride the trough

THE PANIC syndrome created by big stock market operators should have nothing to do with the small investor. However, it is the small investor who is being forced to join the mad race for mutual fund redemptions.

THE PANIC syndrome created by big stock market operators should have nothing to do with the small investor. However, it is the small investor who is being forced to join the mad race for mutual fund redemptions.

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The fact remains that the fundamentals of the Indian economy are currently very strong coupled with companies continuing to report robust growth. In such circumstances, one can easily expect a 15% sustainable growth in earnings over the next few years. It had been proved that investors who have suffered the most in the recent crashes, are those who have been greedy to invest beyond their means. While it is another matter that people with deep pockets could absorb any crash, for a majority of small investors, with a small corpus to invest, the only solution for remaining protected during market crashes is to think of a two to three-year investment horizon.

As regards mutual funds, a well-managed diversified equity fund would be able to generate a return of about 15% over a period of three to five years. In fact, for the small investor, a market fall is in fact an opportunity to buy value stocks at bargain prices.

The biggest recipe for successful investing is to carry out a thorough research on mutual funds for finding out their performance in the past two years. The best way to look at the performance of mutual funds is to do an analysis of the Net Asset Value (NAV) and compare it with mutual funds, which are offering the same scheme during the past two years. If your hard earned money is at stake, it is always prudent to do a little bit of research on an individual capacity before investing.

Over the years, the Indian mutual fund industry is divided between the top performers, laggards and those who have entered the market just to mop up more capital from the market. A word of caution here is that not all New Fund Offers (NFOs) are made for the small investor (having little time to do extensive research on where the fund would be putting your money into the market). It is always prudent to seek help of experienced advisors having put in many years in the industry to choose the right fund for you.

If you want to invest and reap benefits, its better to start early and stay invested for a long time.