Returns that beat inflation
The main reason for volatility is rising interest rates. Central bankers have decided to use their age-old tool of raising interest rates to contain inflation. Although volatility may disappear, investors should not lose sight of their number one enemy: inflation. Stocks can help you beat inflation in the long run provided you pick the right stocks. Long-term capitalization works in your favor to generate inflation-beating returns and the same goes for well-managed portfolios. According to Value Research, flexi-cap funds have returned 13.54% over a 10-year period ending June 17, 2022.
Falling markets mean stocks are available at attractive valuations. It’s like going shopping in a place where there is a big sale. If you love discounts, then Dalal Street is where you should shop now. A lower price-earnings ratio means the availability of companies at attractive prices. Additionally, fair value discounts differ from stock to stock and the best deals may be available in stocks that are not present in major indices. A fund manager can determine the best stock market deals and advise you accordingly.
The schemes’ portfolios are designed in accordance with asset allocation standards clearly defined by the financial market regulator. This ensures that you get what you want. You can select the right plans based on your long-term financial goals and risk profile. For example, an investor with a ten-year view and high risk-taking capacity might consider an allocation to a small-cap fund. Another investor who has a five-year view and wants exposure to established securities in the stock market may want to limit themselves to a large-cap fund.
Often, individual investors are willing to put in the effort and practice the art of selecting well-placed companies for investment. In this way, they follow an investment method. Some are good at a few sectors and have developed an investment style – growth or value or quantitative. But each stock picking approach has its advantages and limitations. And you can’t control everything. In such a case, diversification between various investment factors, as they are called in industry jargon – value, growth, quality, momentum – can be done using equity funds. This not only improves your portfolio returns over a period of time, but also reduces risk.
Average costs in rupees
The biggest advantage of investing in stock funds is owning a stock portfolio with a small amount. One could invest in portfolios of categories – month after month or at regular intervals of choice, perhaps daily, weekly, monthly. When the markets go down you get more units and when the markets go up you get less units. Over a long period, when the markets are rising, your average cost of buying all the units can be well below the then current price (NAV) of the unit, providing you with reasonable gains.
Laddered investments via SIP help us reduce time-related risks. You shouldn’t invest all your money when the market is at historic lows.
Opinions are personal: The Author – Anup Bhaiya is the Founder of Money Honey Financial Services Pvt Ltd
Disclaimer: The opinions expressed are those of the author and are personal. TAMPL may or may not subscribe to the same. The opinions expressed in this article/video in no way attempt to predict or time the markets. The opinions expressed are for informational purposes only and do not constitute investment, legal or tax advice. Any action taken by you based on the information contained herein is your sole responsibility and Tata Asset Management will not be liable in any way for the consequences of any such action taken by you. There is no guaranteed or assured return in any of the Tata Mutual Fund schemes.
Investments in mutual funds are subject to market risk, read all plan documents carefully.