“Man, the nifty is up! Bhai, paise nikaal leta hoon! (Brother, let me take out my money) For the first time, I am seeing a net positive in my equity portfolio. Let me save my investment before the market falls and I lose what I got”
A friend who had been investing in equity mutual funds for about 4 years said this.
He wants to withdraw from his investments because he had seen some falls in his portfolio value, and he isn’t happy with his overall returns. He doesn’t want a repeat of the experience he had during market falls and feels he should save his gains before the market takes them away.
This is something that a lot of investors have considered in this year as equity mutual funds have become relatively more popular only in the last 2-3 years. So why do investors think about withdrawing?
From our experience the primary reason is fear of losing their capital, especially when new investors have seen more red rather than green in their equity portfolio.
Equity is undoubtedly a volatile asset class. Just look at how the daily returns of one equity mutual fund moved in 2017.
What this means is that for those watching their mutual fund NAV values daily, it can feel like the NAV moves like an erratic heartbeat. What one needs to look at is cumulative returns over a period of time (shown below for the same year) but it is hard to see that during any given month or day because all we actually experience is the market jumping up and down.
Until unless you are a seasoned financial professional this experience is hard to digest. In fact, the best investors in the world don’t even consider daily shifts in their portfolio values.
However, why do you invest in equity in the first place?
An ideal long-term investor invests in equity because they believe in the economy of the country and more importantly, in the future of its listed companies.
A good mutual fund is a representation of the best companies in that economy. The mutual funds themselves are managed by some of the most competent individuals. It’s their job to watch these companies and track the investments made in them.
Also, economies, and the companies that make up the economy, don’t grow in just one year or two. They need time to grow. Just like you do, to grow in your career. This is how the Sensex has grown:
The longer your holding period in a good portfolio the lesser is the probability of losing money and greater the probability of higher expected returns.