This is one of the most commonly asked questions by investors who want to or have put a portion of their regular income in equity schemes to meet various goals like buying a house, planning for child's education and overseas holidays. While financial advisors emphasise the importance of long-term investing, usually for 7-10 years, the `fill it, shut it, forget it' strategy might not work always.Wealth planners advise that investors need to review the performance of their investments regularly to ensure their money is working hard enough for them.
A study of 94 diversi fied equity schemes will tell you why keeping a tab on performance is important. Data compiled show of the 94 open-end diversified equity mutual fund schemes, for a 10-year SIP period, the best performer gave an annual return of 29.45% while the worst performer gave 7.6% returns. At less than 8%, the equity mutual fund has delivered lower returns than some long-term fixed deposits.
So, if `10,000 had been invested every m o n t h fo r 1 0 ye a r s i n U T I Transportation and Logistics, the best performing scheme, it would have grown to `43.16 lakh in a decade. Now, if the same amount was invested in a laggard like JM Equity Fund, it would have grown only to `17.26 lakh.
The study shows while it is impor tant to focus on investing in the long-term, it is equally crucial to pick the right product.
Out of 94 schemes analysed, 12 returned less than 10% on a compounded basis over 10 years. Though the number of underperformers is not high, it is still a reminder that winners of the past need not maintain their streak over a pe riod of time. This is relevant to sev eral investors today who have been sold equity mutual fund SIPs by dis tributors almost like a returns-as sured arrangement. Many financial planners show excel sheets where they assure you equity SIPs will earn 12-15% and you will reach your goal. Investors should do their own math, not blindly follow this as there is no guarantee of this return
A lot of the money flow into equity SIPs over the last three years have been driven by such expectations of retail investors.Monthly inflows into equity mutual fund schemes through SIPs, which were Rs 1,200 crore three years ago, have now swelled to Rs 4,000 crore. Wealth managers said investors could review their portfolios every six months.
If a scheme is underperforming its benchmark, it should raise a red flag
But, the six-monthly or yearly review may not work in every case. For instance, there are eq uity schemes that have underperformed for two or three years in a row but have caught up with the rest or even outperformed them over a five-year period. This is true in the case of schemes whose fund managers shuffle their portfolios the moment they see bubbles building up in sectors that are in vogue.
If investors continue to believe in the fund managers' conviction, they can continue to hold on to the investment, else switch out.
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