Patience Has Its Rewards

[INSERT_1]
The stock markets have staged a smart recovery over the last six months. In this remarkable journey of the Sensex from a low level of around 8,000 in March 2009 to the current level of around 16,400, various factors such as recovery in the global economies, positive elections results in India, buying at lower levels and improved liquidity, among others, have contributed to a varying degree. Needless to say, most equity investors who held on to their nerves during the turbulent times prior to March are feeling a lot better. Of course, for those investors who invested their money or a part of their money between November '07 and March '08, complete recovery may still take some more time.

Having shown remarkable patience and perseverance during the most trying period, they would do well to continue showing the same level of commitment going forward and watch their money grow at a healthy rate. The turbulence in the stock markets shook the confidence of the investors. On the positive side, displaying its true character, the stock market started its pursuit to recover lost ground after reaching the bottom in the month of March. During this period of upheaval, only those investors who continued their disciplined approach of investing in equities i.e. either investing through SIP or investing long-term surplus as and when available, benefited from the lower levels. They not only succeeded in recovering the losses but also in making extraordinary profits.

That’s why it is absolutely important for a serious investor to not only have a long-term investment horizon but also follow a strategy of investing on a regular basis irrespective of the market conditions. The crucial part is to adopt the right approach and select the right vehicle rather than following a strategy whereby one takes aggressive decisions in order to make up for the lost time and opportunities. The key issue, therefore, is how to manage that feeling of having missed out. First, it is important for every investor to understand that volatility is an integral part of the stock market.

Therefore, the decision to invest in equities should not be influenced by market movements alone, especially in the short term. An equity investor who remains focused on the long-term objectives and follows a disciplined approach to investing is equipped to get the best results.
[PAGE BREAK]
The need of the hour is to look forward and keep the mindset stable so as not to rush into the stock market. Instead, the right way to go forward would be to commit only long-term funds to equities and by choosing the right investment vehicle. Besides, keeping an eye on the risk profile and time horizon can go a long way in ensuring success.

If your risk profile and the time horizon do not permit you to be in equities, don’t bother about what is happening in the stock market. As regards the selection of the right investment vehicle, it is true that someone who has the capability to select the right stocks and the ability to monitor and analyse the impact of various events on the growth of the companies in the portfolio can earn better returns compared to a diversified vehicle like an equity fund. Let us not forget that investing in equities requires skills both in terms of stock selection as well as monitoring the progress of the companies included in the portfolio. The stock prices move to anticipate events as well as reflect current events.

Therefore, considerable research is required to forecast the performance of the economy, an industry and a particular company. For someone who does not have the wherewithal to do so, it can be quite overwhelming to manage a portfolio of stocks. Mutual funds therefore provide a simple way to get a diversified investment as well as to balance investment risk. Moreover, investors with modest sums of money are fairly restricted as to what they invest in if they try to do so directly. But via an equity fund, someone with a few thousand rupees can invest in securities of many companies. Moreover, with the variety of funds made available today, it is possible to have a highly sophisticated portfolio only with the help of mutual funds.