Key to Investing Wisely over a Long-term
Market experts keep talking about the fact that investing in equities delivers the highest potential return in the long-term. Still, many investors are wary of the risks, others succumb to the temptation of timing the market and in the race of entry and exit from the equities market, end up making losses. Many of us miss out on the benefit of long-term compounding from equities due to our inability to stay invested for long.
The perils of timing the market
It may look very exciting to buy shares or equity funds at a lower price and sell them, when they rise higher, to make quick money. However, in the process, you may miss the best days in the market.
Consider this, according to our internal calculation based on BSE data, if you had invested ₹10,000 on April 2, 1990 and remained invested all days till April 1, 2015 you would have accumulated ₹1.79 lakh. This translates to a return of 12.24% on your investment. However, if you would have missed, let’s say, the 10 best days of the market performance, you would have accumulated approximately ₹1.03 lakh, which translates into a return of 9.4% only.
Adopting a long-term view
Holding a long-term view will reward you with several benefits. A longer time horizon, say 5 years or more, ensures
- That you don’t get affected by short-term fluctuations or volatility due to any event or economic situation.
- Longer period to overcome any short-term losses.
- Enough time for the companies that you or your fund has invested in, to grow and perform to give you the desired returns.
- Tax benefits as returns come under long-term gains.
Sticking to a strategy
One of the most effective strategies of investing in equities over the long-term is to do it in a systematic way by regularly investing money into the market. Diversifying your investments and most importantly, sticking to your investment schedule will ensure you reap the sweet reward of returns that the market offers to long-term investors. The most effective vehicle to do this, is an equity mutual fund.
With an equity mutual fund, you can use the Systematic Investment Plan (SIP) option of investing, so you can start investing early, even if with a small amount. It enables you to invest regularly, taking advantage of rupee cost averaging and ensures that any one single day of market performance doesn’t impact your investments adversely. Further, mutual funds offer the advantage of diversification and most important of all, they are managed by experts in professional fund houses.
To conclude, equity markets are like relationships. No one can predict the best days and worst days. However, if you stay invested long enough and with discipline, it only grows stronger. Invest in equity mutual funds to allow your money to compound by giving it time and you can reach your financial goals.
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