Time to bring Long-Term Investing Back!



All investors today must be very boggled by the fact that the stock markets are down. Some would have an issue looking at losses in their portfolio and would be worried when the markets will be back to higher levels. Some would be booking losses in the anticipation that markets will correct more. So for them it is better to book losses than waiting for the market. And finally, some will look at their portfolio in losses and start adding companies which they seem to be confident in.

Overall, Nifty has corrected 10% from its ATH of 18900. Stocks would also have corrected in the same period. This definitely brings back the opportunity of Long-Term Investing in the Equity Markets. This can be done through the Direct Equity Route or the Mutual Fund Route.

Direct Equity would be investing in one single company where the risk would be high. If there is some negative news in the company, the price will go down. This also requires having in-depth knowledge of the company along with knowledge on their Fundamentals in order to decide which company to invest in. My blog posts on The Equity Checklist will be of huge help here. A novice investor make take a substantial amount of time to go through this process by themselves. If your investments are particularly in Small cap/Mid-cap companies, my old post on A Young Perspective Towards "Fear and Greed Index" will help.

The Mutual Fund Route is a simpler way for a Novice Investor. First of all the risk is reduced as by even investing in one mutual fund, you will be exposed to a number of companies. This will help reduce risk due to diversification. You need to look at the following while comparing Mutual Funds:

1.       Investment Objective: First, you need to understand in which type of Mutual Fund you wish to invest. For example, if you wish to go for a fund which invests in the top companies of the Indian Stock Market, then you should look for funds that either invest in Nifty 50 or Sensex 30 or Top 100 companies. Usually, you will get many options from different AMCs (Asset Management Companies).

2.       AUM (Assets under Management): The Higher, the Better. This means that more investors trust their money with this particular fund/AMC. You can also see the id the AUM has an increasing/decreasing trend which suggests which fund has a better track record.

3.       Expense Ratio: Funds that are active will have a higher expense ratio as it involves AMC’s decisions on which stocks to invest/divest in. A comparison of funds from different AMC’s with a similar investment objective will help you decide. The lower the expense ratio, the better.

4.       Inception Date: The older the fund, the better. An investor can trust these funds as they have been present for a longer period of time.

5.       Past Performance: Looking at returns given in the past can help you find a better mutual fund, but past returns are not indicative of future performance.

6.       Holdings: You can definitely get a look at their holdings that is which companies that they invest in. Some funds have a ceiling on the number of companies they invest in.

7.       Fund Managers: A 2 minute google search on the fund managers will help you in understanding their track record as fund managers and might increase your confidence in the fund.

You can always get help from a Mutual Fund Distributor to guide you better in this regard. They will also help you with implementation of your mutual fund investments.

Currently, I think it is the right time to start your Long-Term Investing Journey via any route you choose. Mutual Funds would always be a better route to start with for a Novice Investor.

Hope this helps in your Journey of Investing!!!

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