On a recent discussion with a couple in their early 30s they posed a very common question which still lingers in the minds of million investors today. Where should one invest for their long term goals (say 20to 25 years) like their retirement corpus.
Further they narrated their investment journey like how they got into investment world of FDs/RDs and Post office MIS schemes once they started earning their livelihood some 5 years back. That’s it and they never came out of these instruments because they were so comfortable with it. Indian investors are traditionally savers and a fundamentalist. They may be less knowledgeable or more, they may critically analyze everything they are told, but when it comes to FDs/RDs/Post office deposits, they seem unshakable in their beliefs. The very idea of safety over returns still plagues the minds of the common investors.
Off late such myths and misconceptions are being broken gradually through several advertisements and retail investors are now looking in to mutual funds as an investment tool for a time period ranging from 2 to 20 years plus. So when you have such a long time horizon where should you invest?
Answer is better start your investments with a multi cap fund let’s say for some 3 to 4 years time in the beginning. By advocating/suggesting to begin with a multi cap fund it does not mean that I am ignoring small cap and mid cap funds as they would have definitely generated a far superior returns than a multi cap fund for the same time period but then there is an element of risk involved into small and mid cap fund categories. The very nature of investments into such fund category is risky and I am not very sure or confident enough that a common investor would stick to it at all times.
Everyone still remembers the 2008 market mayhems or for those who would have experienced it – the investors’ investment value went down by 60 to 75% and sticking to one’s own plans got really difficult at those times. Therefore, start with a multi cap fund understand the finer nuances of investment market get used to it and over a time period gradually increase your exposure to let’s say around 50% into small cap and mid cap funds but only after you have experienced the market nature and built up a gain in the market .
Lets say one would have invested into a popular tax savings funds way back in 1998 with an SIP of 20,000 per month total investment by now would be 48 Lakhs and the same would have become around 1.87 Crores and when you send those kinds of gain around 3.9 times of the total amount of investments it really enthralls your mind. You are ready to take the risk and take a deeper plunge into the market.
Your contribution is only 26% of the total corpus and your risk appetite or should say risk tolerance goes up. There is a different you and the belief gets further strengthened.
Over period of 20 to 25 years time you will see that the investments that you have made and the gains that you have earned the component of your own investments would be very little and that would give you a great piece of comfort.
But, when you are a newbie or not experienced enough even a Rs. 1,000 investment turning out to be Rs.900 rupee in a small time period of let’s say 6 months shakes you up and you put the panic button on. Or it turns out that your investments have turned positive to Rs. 2,000 you start staring at it with a sense of disbelief. When it comes down to Rs. 1,500 again you panic. But, then comes another scenario where Rs. 1,000 becomes Rs. 4,000 and then it goes down in a value by RS. 200/- you don’t panic, you get so used to it and you stay fine with it. That is the moment of belief you are looking at right.
So investment is a simple art but made complicated because of the several avenues available to us. Understand your requirements at the first level, then chart a plan, think about a number, understand your life style and your risk taking ability and then carefully select a product.
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