Does it make sense to invest in Equity MF when chips are down

Well if today we ask anyone to invest in Equity MF then that person will give you a good hard look and will ask are you in your senses ? How come you can ask this question when you know what has been the return in last some years. Yes it is true that even last 5 years return in Equity fund does not look very attractive and so this repulsion toward Equity MF investment.

There are always two way of deciding, one from heart and another from brain. The decision from heart is mostly emotional and at times may lead to wrong decision but by the end of the day we are all human beings and at times heart rules the brain. When we use the brain we are logical and evaluate pros and cons and prove correct most of times.

Now a simple fact – why we invest ? obviously to see money growing. So we want the money to grow but not see it losing its value.

Stock market went up to 21000 level and then have been in 18000 levels for quite a long time and then last few months going down to 16000 level. Well only God Knows what holds next. As there is a famous proverb – there is no point crying over spilt milk, I believe this is what investors should be also doing. Now we cannot undo of past but take some corrective measures to cover up losses and also go for gain.

Firstly market never went so fast and quick (2004 to 2007) and one doubts history will not repeat so quickly at least in coming decade.  Knowing this if I have to take a decision whether to invest in Equity MF schemes or not I will definitely say yes but with some clear cut preconditions.

Whether we should be investing in Equity MF or not today has to be seen in prospective light and not retrospective light which is the mistake which most investor does and at times repents also. So the first question is how much we are positive or negative as far as earnings from Indian Corporates are concerned. If the business growth looks bleak then one has to evaluate how long -1 year, 2 year , 3 year or 5 year or ….. Yes many companies performance have dipped but its not that they are making losses. Most of the Indian corporates have realised the situation and have moderated their cost and revenue structure. So if anyone buying any stock or Equity MF it is at the cost of today and not cost of peak (2007-08) which is at huge discount from that level. Good companies will continue to earn and investors interest will remain from them in stock market and so will be valuation and revaluation at higher level.

When anyone invests in Equity MF , he is indirectly acquiring the shares of the companies which form part of the portfolio so in today’s context more important to be seen is which type of stocks are part of portfolio and if one is comfortable that the companies are all good one so one can expect good returns.

The second aspect is time. Now again since present and near future does not look very good or in other words there seems some uncertainty from domestic (macro perspective, govt perspective) and  global perspective there could be some negative impact in short term but ultimately after every night they is a day, after every storm there is serenity and one believes that even if there will not be bull run of what we have seen in past but returns will start coming once all negatives are fully accounted for and if one believes in natural law of progression then it is bound to happen sooner or later. But still since short term uncertainty exists one has to be sure of 5 year stay.

If you are buying an Equity MF which has a portfolio of good company stocks, which are generating revenue and the fund manager has proven track record then there is not much to worry. So now investors have to be cautious on type of fund. Not all funds can be suggested to go for investment and only proven ones, time tested ones are worthy candidates for investment.

Even if immediate past is haunting us and near future does create some doubt in our mind but again we have to believe one thing that today we are living in materialistic world where we are dependent on certain products, some products are part of life and some we go for it is part of our desire, changed lifestyle and so we can say that these companies will not wither away and stay growing because of demand and so stocks of these companies will find rise in prices in progressive manner and so gets our Equity MF return enhanced.

Investors have to understand VALUE and VALUATION. Valuation is dynamic and determined mostly by market sentiments whereas Value is determined by the actual benefit that company generates. Valuations are cheap and attractive because sentiments are low but value is something which has been created over many years, decades and linked with company’s business, products and large customer base they hold. So VALUE which has been created through efforts of many years or good business performance can never be undone by low valuations. So investors look at value in equity and keep long term faith and you will earn good return.

Again I repeat after every dark night there is a bright sunny day.