If Equity Mutual Funds Carry Risk, What's the Benefit of Investing in Them?

Posted On Friday, Feb 22, 2013

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It`s never too early to think about securing your financial future since all of us have many goals and aspirations in life for which we need the right amount of money at the right time – whether it is to send your children to school, to buy a home or to have a financially stress free life after your retirement.


Some people may put their savings into savings accounts. With many savings accounts giving not much more than inflation in interest, the best way to grow your money is to choose sensible investment options. The importance of investing is paramount not only to have money for the future, but also to secure the money you already have.


A Caveat

As an investor you must know that stock markets are never static and fluctuate on a daily basis, hence the risk of investing in stocks is high as the stock you may buy today could appreciate or fall in value even at the end of the day itself! Therefore investing in equities comes with an inherent risk. However, as they say, higher the risk, higher the gain. So should you invest in equities after all? Read on...


What are Equities?

Equities are stocks or securities of a company that represent the proportionate ownership in that company to the person owning them and equity investments are those in which the money is invested in stocks or securities and gets returns depending upon the market value of what they have purchased and also upon the duration of their investment horizon. Equities are generally preferred by people who have medium to high risk appetite.


Coming to Equity Funds

Most Mutual Funds in the country have launched actively managed equity funds which, through professional Fund Managers, try and beat their benchmark of scheme and therefore strive to give you better returns.


You may choose to invest directly in the market on your own, but you need to have the capital and more importantly the time to manage your portfolio. In such a fast paced world it is suggested to outsource what is not our core competency, hence investing in Equity Funds involves professional Fund Managers managing your money, therefore potentially reducing the chances of taking a wrong call on a stock.


Please note that like equities - equity funds too are `risky` in the short term but in the long run they can help create wealth out of your savings. While the risk factor is always higher with equities, one should not ignore the high probability of gaining larger returns from them over a longer period of time.


Therefore risk may also be taken as an opportunity to gain higher returns but it should be a calculated risk.


This risk factor may be reduced in case you follow a few simple steps:


Never buy a fund merely for its ranking or rating

Do your homework properly before deciding on which company you are going to invest in. Never choose a fund with past performance and the same instructions applies to rankings also. Always choose a fund which has strong investment philosophy, a disciplined process of investment and experienced people managing the fund, which will ultimately have a potential to satisfy your future obligations.


Avoid speculation and plan for the long term

Speculators generally take short term views on where the price of investments is heading. This is especially dangerous in case of investments in equities. They have little interest in understanding the underlying businesses or assets that they have invested in. So don`t be a speculator, if you don’t need the investment that you have made urgently, let it be in the scheme for as long as possible. Let it grow. Give your investments the time to earn compound interest. So, if you have invested in a good mutual fund and until and unless it is a ‘no more options available’ situation, it is advisable not to pull the plug on the investment that you have made.


SIP by SIP

If you are among those who believe that investing in equities requires a large lump sum, then here is a reality check: You can invest in equities through mutual funds for as low as Rs 500 a month or Rs 100 a day. That is the wonder of Systematic Investment Plans - Invest big through small savings. An SIP gives you the ease of managing your investment commitment like any other monthly or daily expense that you have. Investing through the SIP route helps you make regular investments at regular intervals and can help you gain from the benefit of compounding.


And most importantly - avoid greed, be methodical

No matter how lucrative the deal might sound like, always invest in what you had thought that you would invest. Avoid greed for more profits. Be rational rather than emotional. Always stick to your financial plans and future obligations. Also, it is important to note that while equities may look really attractive, and gold may seem steady, an over-commitment to any one particular asset is potentially quite dangerous. Don’t put all your eggs in one basket, i.e. you don’t have to get overwhelmed with equities and park your 100% savings with them. You can also consider other asset class like debt or gold to balance out the risk.


So where should one invest ones savings?
Firstly you need to consult a financial planner to gauge your risk appetite and how much of your savings should be invested in equities. While investing in equities one could look at investing in a diversified Equity fund, like the Quantum Long Term Equity Fund.


Quantum Long Term Equity Fund (QLTEF) an Open-ended Equity Scheme gives you an opportunity to invest in equities. The investment objective of the Scheme is to achieve long-term capital appreciation by investing primarily in shares of companies that will typically be included in the BSE 200 Index and are in a position to benefit from the anticipated growth and development of the Indian economy and its markets.


The Quantum Long Term Equity Fund aims to focus on a disciplined and structured investment process that follows an investment philosophy, which we believe, offers investor sustainable long-term returns with sensible risks.


Quantum Long Term Equity Fund has given a CAGR return of 14.47% since its inception i.e. from March 13, 2006 while its benchmark, the BSE 30 TRI has given a return of 10.56% & the additional Benchmark - (BSE Sensex) of 9%. Past Performance may or may not be sustained in the future. Please refer to the table below for details.


Quantum Long Term Equity Fund is managed by Mr. Atul Kumar & Mr. Nilesh Shetty


Performance of Quantum Long Term Equity Fund, an Open-ended Equity Scheme:


Performance as on December 31, 2012 Quantum Long Term Equity Fund

Jan 01, 2012 to Dec 31, 2012Jan 01, 2011 to Dec 30, 2011Jan 01, 2010 to Dec 31, 2010Since Inception**

Absolute Returns (%)Absolute Returns (%)Absolute Returns (%)CAGR Returns (%)Current value of standard investment of Rs.10,000/-(INR)
Quantum Long Term Equity Fund (Growth Option)31.21%-20.16%28.82%14.47%25,100
Scheme Benchmark -
(BSE 30 TRI)
27.99%-23.64%19.14%10.56%19,815
Additional Benchmark -
(BSE Sensex)
25.70%-24.64%17.43%9.00%17,982

^Quantitative data as on 31 December, 2012 Standard Deviation: 25.48% Beta: 0.65 Sharpe Ratio: 0.64

Past Performance may or may not be sustained in the future and may not necessarily provide a basis for comparison with other investments.
**Date of Inception - March 13, 2006. Since inception returns are calculated on NAV of Rs.10 invested at inception.
^ Please refer below for Definitions.


Other schemes managed by Mr. Atul Kumar


Performance of Quantum Tax Saving Fund, an Open-ended Equity Linked Savings Scheme with a lock-in period of 3 years:


Performance as on December 31, 2012 Quantum Tax Saving Fund

Jan 01, 2012 to Dec 31, 2012Jan 01, 2011 to Dec 30, 2011Jan 01, 2010 to Dec 31, 2010Since Inception**

Absolute Returns (%)Absolute Returns (%)Absolute Returns (%)CAGR Returns (%)Current value of standard investment of Rs.10,000/-(INR)
Quantum Tax Saving Fund (Growth Option)31.36%-20.92%28.17%25.39%24,870
Scheme Benchmark -
(BSE 30 TRI)
27.99%-23.64%19.14%20.59%21,257
Additional Benchmark -
(BSE Sensex)
25.70%-24.64%17.43%18.86%20,055

^Quantitative data as on 31 December, 2012 Standard Deviation: 19.63% Beta: 0.63 Sharpe Ratio: 1.48

Past Performance may or may not be sustained in the future and may not necessarily provide a basis for comparison with other investments.
**Date of Inception - December 23, 2008.Since inception returns are calculated on NAV of Rs.10 invested at inception.

Some attributes of Quantum Long Term Equity Fund other than the complete transparency we offer and the convenience of Investing Online without any paperwork are;


Quantum Long Term Equity Fund follows disciplined research and investment process.
Quantum Long Term Equity Fund consists of a well balanced portfolio - typically 25 to 40 stocks, across sectors.
Quantum Long Term Equity Fund has a low portfolio turnover which helps in keeping the expense ratio low. We have one of the lowest expense ratios in the industry today at 1.25%.
Quantum Long Term Equity Fund holds shares or cash when stock are overvalued - No derivatives and No hedging.

Invest your money in Quantum Long Term Equity Fund and participate in the Indian equities market.


Invest Online Now   Know More Quantum Long Term Equity Fund


Disclaimer:
The views expressed here constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. This information is meant for general reading purpose only and is not meant to serve as a professional guide for the readers. This document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The Sponsor, The Investment Manager, The Trustee or any of their respective directors, employees, affiliates or representatives do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and opinions given fair and reasonable. This information is not intended to be an offer or solicitation for the purchase or sale of any financial product or instrument. Recipients of this information should rely on information/data arising out of their own investigations. Readers are advised to seek independent professional advice and arrive at an informed investment decision before making any investments. None of The Sponsor, The Investment Manager, The Trustee, their respective directors, employees, affiliates or representatives shall be liable for any direct,indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the information contained in this material. Please visit – www.quantumamc.com/disclaimer to read scheme specific risk factors.

Above article is authored by Quantum.

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