Expecting the expected

The last few quarters have been very good for equity investors. Especially for those who have remained patient were handsomely rewarded. There are categories that generated a return in double-digit. Nonetheless, investors should always have a rational return expectation from the investment and should avoid chasing big numbers. 

Short term market noise can lead you to have exaggerated or underestimate return expectations. However, in long run, it will revert to mean, and hence short-term movement should not set your return expectation. 

What are the scenarios? 

For example, if you want to have a corpus of Rs One crore you need to invest Rs 10,000 every month in Public Provident Fund for the next 27 years and three months assuming it gives you a 7.1 per cent return. Similarly, if you are investing in the national pension scheme(NPS) and getting a return of 10 per cent, you need to invest for 22.35 years to get Rs One crore. In case you are investing in a diversified equity fund, it will take 20 years to reach Rs One crore with an assumed return on investment of 12 per cent per annum. 

The following table shows the last one-year and ten-year annualized returns of different categories of equity dedicated funds. 

How to get the most out of your investment?

There are a couple of things that will help you in getting the most out of your investment. The first is to stay on course after you have done your research. There is always a risk that the market cycle will change, and chances are high that you would never guess it right. Hence, do not change your strategy at the wrong time as it is the single most devastating mistake you can make as an investor. The second thing to keep in mind is to minimize the cost of investing. Cost in terms of brokerage, fees and commission directly eat away your returns. In investing, you get what you do not pay for.