Long-term investors should not deviate from their financial goals

30 JUNE, 2020

 

Yes, the stock market is extremely volatile right now. Most equity oriented mutual fund returns aren’t at their best. A lot of investors are thinking hard about their next move. Some feel it is a good idea to exit, and enter again when the market is right. That might not be the smartest idea. After all, it’s just been a quarter (three months) since COVID-19 has impacted the world. Yes, a lot of funds are showing less-than-ideal returns, but you have to understand this is an aberration.

Take a look at Kotak recommended large and multi cap funds for SIP below, to see how they have fared over a decade: From January 1, 2010 to January 1, 2020; the lowest return in this group is 12.43%. That’s a lot more than any asset class would give an investor.

Fund SIP amount Start date End date Total investment Valuation on Jan 1, 2020 Annual return
ICICI Prudential Bluechip Fund 5,000 01-Jan-10 31-Dec-19 6,00,000 11,52,260 12.53%
ICICI Prudential Multicap Fund
5,000 01-Jan-10 31-Dec-19 6,00,000 11,46,048 
12.43%
Kotak Standard Multicap Fund 
5,000 01-Jan-10 31-Dec-19 6,00,000 12,99,522 
14.78%
Mirae Asset Large Cap Fund
5,000 01-Jan-10 31-Dec-19 6,00,000 13,38,613 
15.33%
SBI Magnum Multi Cap Fund 
5,000 01-Jan-10 31-Dec-19 6,00,000 12,27,220 
13.71%

Source: MFI Explorer

If you increase the SIP period to March 31, 2020, the returns are as below: 

Fund SIP amount Start date End date Total investment Valuation on March 31, 2020 Annual return
ICICI Prudential Bluechip Fund 5,000 01-Jan-10 31-Mar-20 6,15,000 8,34,501 5.8%
ICICI Prudential Multicap Fund 5,000 01-Jan-10 31-Mar-20 6,15,000 7,99,319 4.99%
Kotak Standard Multicap Fund  5,000 01-Jan-10 31-Mar-20 6,15,000 9,50,177 8.21%
Mirae Asset Large Cap Fund 5,000 01-Jan-10 31-Mar-20 6,15,000 9,68,937 8.58%
SBI Magnum Multi Cap Fund  5,000 01-Jan-10 31-Mar-20 6,15,000 9,00,994 7.23%

Source: MFI Explorer

Extend it by two more months i.e. until May 31, 2020 and these are the returns:

Fund SIP amount Start date End date Total investment Valuation on May 31, 2020 Annual return
ICICI Prudential Bluechip Fund 5,000 01-Jan-10 31-May-20 6,25,000 9,54,020 7.87%
ICICI Prudential Multicap Fund 5,000 01-Jan-10 31-May-20 6,25,000 9,09,400 6.99%
Kotak Standard Multicap Fund  5,000 01-Jan-10 31-May-20 6,25,000 10,66,084 9.88%
Mirae Asset Large Cap Fund 5,000 01-Jan-10 31-May-20 6,25,000 10,80,547 10.12%
SBI Magnum Multi Cap Fund  5,000 01-Jan-10 31-May-20 6,25,000 9,97,236 8.67%

Source: MFI Explorer

Just take a look at the return figures for March 31, 2020 and May 31, 2020. People panicked and sold off their investments in March, 2020, but the funds have rebounded handsomely in April, 2020 and May, 2020. If you were an investor who sold off, you would feel very bad about it now. Yes, you will panic but when you do, call up your Relationship Manager and speak to them. Do not ignore stellar returns in a normal world and throw away years of disciplined investing.

Continue with your SIPs. It is a great buying opportunity for smart investors. Will markets continue to be volatile? You can bet on it! Should you continue to invest? You can bet on it! Speak to your Relationship Manager and talk to them. Ask them all your questions and talk to them about your fears. They will be able to guide you.

Amidst all the volatility, there is just one point you need to keep in mind. It is ideally suggested to liquidate your equity portfolio two to three years before your financial goal and transfer it to a fixed income instrument where your returns are assured. This ensures your portfolio does not suffer any market volatility. As long as you remember this golden rule of investing, you should be able to meet your financial goals.

Remember, by stopping or pausing your investments during volatile or bad market phases, you are actually letting go of an opportunity to buy more units. This can help with maximizing your wealth in the long run, which is the entire objective of investing.

As the Oracle of Omaha, Warren Buffet says “Widespread fear is your friend as an investor because it serves up bargain purchases”.


Disclaimer

Mutual Funds are subject to market risk. Please read all scheme related documents carefully before investing. Click here for the detailed investment disclaimer.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.