Mutual Funds: Stay Invested in Equity if you have a Long Investment Horizon

Equities are inherently volatile, and the quantum of volatility goes up in the short-term. To put it otherwise, there are chances of making loses when you invest in equities with a short-term perspective. Equity markets can sharply correct in the short-term, resulting in erosion of wealth.However, if you have a long-term perspective, there are chances of making up for the losses. Historically, Indian equity markets have rewarded those who have stayed put during a turmoil and have adopted a long-term approach towards investing in them.Markets movements are never linear, and equities in the short-term often fail to yield the desired results.

So, what’s a long-term horizon or how many years should be considered as long-term? Though there’s no definite answer to this, generally long-term is considered 5 years or more. This, however, depends a lot on the present conditions.As an investor, you can expect your equity portfolio to yield the returns expected if you can hold onto them as per market situations. For instance, the current turmoil in the stock market triggered by COVID-19 pandemic has eroded gains made painstakingly over the years with returns from equities nosediving.If you have fundamentally sound investments in equities via mutual funds, staying put now can reap dividends in the future. On the other hand, if you panic and exit, you will turn your notional losses into actual ones.

While you can invest in equities either directly via stocks, for a long-term perspective mutual funds are a better alternative. This is because they not diversify your investments, but their professional management helps you better ride market volatility.Through systematic investment plan or SIPs in an equity mutual fund, you can remain invested across market cycles and buy more units at a lesser price when the markets are down. Thus, through mutual funds, you can remain invested in equities for the long term and make meaningful gains.Before zeroing in on mutual fund to invest in for long term, check out the fund fundamentals, its structure and the returns it has generated vis-à-vis its peers and benchmark indices. Check out the underlying holdings and the track record of the fund manager before committing. The final word A long-term investment in equities can help you leverage this asset class to the fullest to enhance your riches and build an adequate corpus for various life goals.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.