Long-term investors shouldn’t get swayed by market conditions
Market conditions matter only to those who are speculating on its direction over the short term
I invest in an equity-linked savings scheme (ELSS) in my son’s name. Will I get any tax benefit?
—Shantanu Bhakat
If the folio is held in your son’s name, then you will not get tax deductibility. Investments in ELSS funds should always be done in the name of the person who is planning to avail tax deductibility. If you would like to invest in your son’s name, you would be better off investing in diversified equity funds for the long term.
In market conditions such as now, as a first time investor, what kind of schemes would you suggest?
—Beenu Nair
Market conditions matter only to those who are speculating on the direction of the market over the short term. For investors who are saving and investing for their long-term needs, market conditions are not very relevant. To illustrate this point, let’s take a look at how investments done in a previous such market peak would have performed by now. The previous such occurrence was in January 2007. If an investor had started a systematic investment plan (SIP) in a good fund (then and now), say, Franklin Templeton Blue Chip Fund, she would have had a compounded annualized return of 14.4%. Even a one-time investment would have yielded a return of close to 12% per annum over the past seven years. And, these are after-tax returns. This is the power of long-term equity investment.
You can get started with a good large-cap fund or a good diversified fund such as UTI Opportunities.
How important is the track record of a fund house?
—Harleen
When it comes to evaluating a fund house, the notion of track record is not quite the same as when evaluating a particular fund. With a fund, we can look at returns across different periods, systematic investment plan (SIP) returns, risks taken, and so on, and these factors could together constitute an analysis of its track record. With a fund house, however, one has to look at factors such as size (the total assets under management), history (how long it’s been around), stability in fund management, along with the aggregate performance of its funds to evaluate the track record. For performance, one could look at how consistently it has funds in the top quartile of performance ranking across market cycles.
For an investor who is seeking to invest for the really long term (over 15-20 years), the track record of the fund house she is investing with could play an important role in choosing funds. If a fund house has seen multiple market cycles and delivered top-performing funds over the years, an investor can be reasonably confident that her investments would be well managed over the long term, with stable continuity in terms of fund management expertise.
Queries and views at mintmoney@livemint.com
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