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What should investors do in 2019?

Equity market returns have been higher than fixed deposits. If history were to be any indicator, this trend should continue.

Stock markets in 2018:

Though the Nifty was up 4.6% in 2018, the mid and small cap indices performed poorly, both on an absolute basis and relative to the Nifty. The Nifty Midcap Index was down 14.6% and the Nifty Smallcap Index was down 26.1%.

On the other hand, it is important to note that over long periods of time, the Midcap and Smallcap indices have done better than the Nifty. In addition, equity market returns have been higher than fixed deposits. If history were to be any indicator, this trend should continue.

Mutual Fund performance in 2018:

Though the Nifty was up 4.6%, the Top 25 equity Mutual Funds by total assets under management (which account for more than 40% of the total assets of equity mutual funds), were down 4.1% in 2018. One of the main reasons for this is that equity mutual funds have a reasonable mix of large and midcap companies in their portfolio. Since the midcap indices performance was weaker than the large caps, overall mutual fund performance was worse off than the Nifty. Whereas, over longer periods of time, these funds have delivered about 2-3% ahead of the Nifty.

What should investors do in 2019:

Equity market returns differ across years, but over longer periods should do better than fixed deposit rates of returns. If one were to look at the Sensex 27 years since 1991, one would observe that about 30% of the period’s market returns were negative, 30% of the years were moderate and 40% were strong years. Unfortunately, one can’t predict the weak, moderate and strong years. It is best to stay invested through the period, else one could land up missing out on the Strong years.

Sensex Performance:

What do we do at Scripbox:

Based on data, we continue to believe in the following.

  • Equity mutual funds are a proven vehicle to deliver great equity market returns over time. They have proven capability to do so, not only in India over the past 20 years – but have also proven themselves globally.
  • Our algorithms select funds based on:
    • Funds having been around for more than 5 years
    • Consistent track record of performance and doing better than the market
    • Have a reasonable size and scale

Most of the mutual funds in the portfolio, both current and past, have been around for more than a decade and some funds have been around for over 2 decades. Some of the early equity mutual funds in India, which were launched in the mid-90s are up well over 50 times in the same period, and many of us would wish we had been part of the early investors in these funds.

Equity investing is more like a test match cricket. Put together a team of great consistent performers, be patient and give it some time. There are no quick wins.

If one were to look at the Sensex 27 years since 1991, one would observe that about a 30% of the period’s market returns were negative, 30% of the years were moderate and 40% were strong years.

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