Patience is the Key to Wealth Creation

A recent study by one of the leading mutual fund house in India shows that investors tend to make lower returns than the schemes they invest in. This is irrespective of categories like equity, debt or hybrid funds. The reason being they overreact to market sentiment, do not follow any asset allocation strategy and invest without a proper plan in place. The best example of such incongruity was reflected in the year 2020. Every month since July 2020, we saw a net outflow from equity-dedicated mutual funds. Even investment through the SIP route saw a decline.

This is despite the market having gained from strength to strength while it touched a new lifetime high within eight months. Therefore, if you want to match your returns with that of returns generated by the fund, you should always have patience as volatility is part and parcel of investment. To remain patient you need to invest with a proper plan that will give you a perspective on how and when to exit from your investment. Most of the recent exits seem to be by retail investors and done in a haphazard manner, therefore leaving much of the return on the table.

Those investors who do not have a stomach for volatility or are afraid of large drawdown should stay away from equity or equity-dedicated securities. Nevertheless, if they want to invest in equity but want to minimise the volatility attached to it, they can choose those funds that invest in shares that have historically shown lower volatility. Our cover story this time dives deep into themes and funds that invest in stocks that remain more stable during a volatile period. This does not mean that they will not fall; they too will fall, however, the magnitude will be lower.

SHASHIKANT