Investing in Equities Through Mutual Funds


                                                                ARINDAM GHOSH

We have innumerous demands in our life to deal with, innumerous dreams to give shape and innumerous commitments to fulfill in our lifespan. A dream home for comfortable stay, a dream car to move around, a good education for children, a holiday at foreign destination, an early retirement – the ends may be different, but the means probably the same—money. Earned wisely, saved regularly and invested smartly.

We all have our own way of earning, may be from service, business or profession, but the essence of our discussion is regular and smart investment of our earnings. The question is not now investment only, it is smart and wise investment, i.e. choosing among the best alternative from a number of options. And over time Equity stocks has provided the best performance as far as return is concerned.

Cumulative annualised returns of different asset classes
(1985 – 2008*) Source: CLSA

17.9 %

11.6 %

10.6 %

            8.1 %

The chart shows that in Indian market during last 23 years equity has really outperformed. But the unfortunate part of it is that even then the Indian investors tend to remain content with the traditional investment options like Bank Fixed Deposits, Govt Bonds and Securities, Post Office Savings and Insurance. But all of them failed to beat the present rate of inflation. Just pause for a second to think that the inflation rate is around 12% and your Provident Fund or Post Office Savings are giving you a return of 8.5%. Then are those really fruitful investments or a slow erosion of your hard earned money? But although the return on equity gives a very rosy picture one should not forget the point that the above analysis is made on the basis of a long range data, i.e. one should have a long term view of investment while investing in stocks. This is true that Stocks are not expected to beat the Bonds and...