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Will I get good returns from equities if the markets are in bear phase

Investment in MF and stocks would yield benefits if the markets are going up, i.e. the bull phase. But the funds/stocks would under perform if the stock markets are in bear phase. Also if for three years stock markets are just stable do not move up or down would the stocks/MFs returns would be stable or can we still expect a positive return from investments?

Sep 14, 2016 by Ravishankar Patil, Pune  |   Mutual Fund

Mutual Funds have a broad category of funds to offer and it is upto the investors to select one according to their risk profile, investment needs and horizon. As, all category of funds are not market linked, therefore, you have an opportunity of selecting those funds which has less risk and not subject to the volatilities of the stock markets.

When you are investing in stock markets directly, the risk is very high as you are investing on your own and you may not be a market expert. On the other hand, if you are investing through mutual funds, your investments are managed by expert fund managers who are suppose to take appropriate calls based on the markets. Therefore, an expert fund manager tries to beat not only the market returns but also the benchmark and even tries to deliver alpha.

The stock markets in India move according to the movement of 30 top stocks (Sensex) or 50 top stocks (NIFTY). But there are 1000s of stocks which do not move with the markets. Therefore, we have seen many instances when the markets have not done well but a category of funds have done very well. For example 2015 was a bad year for the stock market but was a good year for small and mid cap funds.

Having said that, investing in equities mean you are taking higher risk in anticipation of higher returns. And if you need higher returns then investment horizon has to be long. The equity investors with a long term horizon has always been rewarded by the market. Therefore, to answer your question, yes you may expect a positive return provided your investment horizon is long and even if the markets are not stable in a particular period of time you can expect the rewards.

With regards to your mention of investment for 3 years, please note that you should not invest in equities as 3 years is not the right horizon for investing in equities. Investing in debt funds or other debt products makes sense for an investment horizon of 3 years or so.

Thanks for writing to us.

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