CEO Speak

As we move to the end of this financial year and reflect on the markets, barring the last couple of month's volatility, the overall year has been great for the Indian Mutual Fund Industry. The industry AUM (Assets under management) stood at Rs22.20 lakh crores as on 28th Feb 2018. This is great news! To give you a perspective, the industry AUM touched Rs 10 lakh crores first time in May 2014 and in a short span of less than 4 years it has increased in size by more than 2 folds when it stood at Rs 22.20 lakh Crores in Feb 2018. The number of investors which is indicated by the number of folios has also shown a steady and promising growth and stood at 6.99 crores and the number of folios in equity, ELSS and balanced schemes was at 5.80 crores. This shows the growing confidence and participation of the retail investor in the equity markets through the mutual fund route which is very encouraging for the industry. (Source: AMFI)

Next year, we expect some volatility because of global and domestic uncertainties. We are also coming across doubts raised by some investors who are expressing concerns over depleting returns on SIPs over the last one year or how some of their wealth has got eroded over the past few months. Well, here I would like to take everyone back to the basic investment philosophy of investing in the equity markets over a period of longer duration of time and not to get perturbed by occasional volatility and ups and downs in the market as, over a span of 5 years or 10 years, such blips are usually netted out as is evidenced in historical data as well. As long as your asset allocation is done as per your financial goals in different kinds of instruments, you should not get worried by market volatility when the rest of the fundamentals look positive over a longer period of time.

If we take the data from two of the significant downtrends in the Indian equity markets which happened in 2000 and 2008, we find that in both the cases investors would have had a big dip in their returns and negative returns on the 1 year horizon crossing these two years , however , in both the cycles in a span of approximately 5 years , their returns jumped back to decent levels.

The industry has seen an overall addition of 32 lakh new investors over the last one year, while the total number of folios grew by 1.05 crore or 26% during the period.

Year 2000: An investor who had started a SIP in Feb 1999, a year before the infamous market correction of 2000, would have seen his portfolio yield returns close to 80% on a 1 year basis. However, as markets corrected the same investor would have seen his SIP yield being reduced to 10% in June 2000. As the market correction deepened, his SIP yield as on Oct 2001 would have been -22.6%. Incidentally this turned out to be the market bottom as well. If the investor would have stayed throughout this phase and continued with his SIP instalments his 5 years returns would have been a decent 17.5%.

Year 2008: Similarly in 2008-09 we saw a volatile correction followed by a swift V shaped recovery. An investor who had started a SIP in Jan 2007, a year before the another market crash of 2008, would have seen his portfolio yield returns close to 88% on a 1 year basis. However, as markets corrected the same investor would have seen his SIP yield being reduced to 10.3% in Apr2008. As the market correction deepened, his SIP yield as on Mar 2009 would have been -39.1% in Feb 2009.It took just 3 month to recover, as the SIP yield improved to 8.9% in July 2009 recouping all the losses of 2008. And in a mere 3 years time, the same SIP returns would have reached 17% levels.

While I cannot predict the markets, I can definitely assure you that in volatile times, one needs resilience to tide through the trough phase and as historical data evidences, if you have the financial goals planned you , your asset allocation sorted, one should always stay invested for the long term and not get panicked by the down trends.

 

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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