A question we get asked very often is, “Is this really a good time to invest in equity or equity mutual funds?”

A question we get asked very often is, “Is this really a good time to invest in equity or equity mutual funds?”

The reasons are obvious. There is a feeling that equities haven’t gone anywhere in the last few years and the stock market has been quite volatile. Interestingly, the same question is also asked when the markets have run up. At that time the fear is of investing at the top.

A good answer would be a quote attributed to the investor John Templeton, “The best time to invest is when you have the money.” There is a lot of wisdom and science behind that simplistic quip. An investor who is investing for the long term should not concern himself with daily or weekly movements in stock prices or market benchmarks.

Our research of historical market data has shown that an investor who stays invested for about 7 years has a high probability (67%) of achieving a return greater than 15% and even higher probability (75%) of achieving a return greater than 12%. This analysis was done on monthly Sensex values, so the return expectation is for an investor investing at any random point in the last 30 years and holding for 7 years.

However, for a three-year holding period that probability drops to 50%. So clearly Equity investing is not for the short term.

A decision to invest in equity must always be made with realistic expectations. Over a thirty-year period equity in India has delivered a 16% annualised return – multiplying an investment more than 100 times. This is the best performance amongst all investment options, beating Gold (17 times), FDs (18 times) and Silver (21 times). The point to note is that the number is 16% and not 50% or 100% per annum. And there were significant variations from that average in the journey.