Why investing in equities is a better option?

By BankBazaar | May 2, 2012

While the sudden plunge of the markets has caught indices off-guard, equity mutual funds have managed the volatility well, outperforming the functioning of indices. Contrary to what many market observers had predicted initially, indices haven’t responded too well to the declining effect of the market, crashing heavily on the expectations of the investors. Mutual funds on the other hand have shown a progressive growth, handling the downturn with grace, whilst rewarding share holders with greater returns.

While gold exchange funds overshadowed equity mutual funds towards a better inclination of profit, post the elections, equity funds have collectively managed the downturn well, declining at a much lower rate than that of the indices. Indices refer to a statistical measure of the changes taking place in an economy or securities over a period of time. According to analyses, the reason behind this fall can be attributed to the fact that since several aggressive stocks underperformed their levels, many funds were underweight on them. As a result, during the fall, funds performed better, receiving living returns as compared to benchmark indices. Also, several equity mutual funds offer a greater variety of choices to the consumers, with good exposure on leading market variables like health and technology. Thus, equity mutual funds have held the pulse of the market, delivering the needed product to their respective investors.

While the market has been falling off many points and rising on quite a few, many analysts regard this period as a testing time for stocks in the market, due to the disturbing levels of fear and uncertainty among buyers. This may also lead to fund houses steering away from interest rates for the realty and automobile sector as of now, since the sharp rise in interest rates has to be appropriately defended by fund houses.

As prudent investors, it is important for you to make sure that you do not react to these fluctuations instantaneously. If you have invested in mid – long or long term equities, take a deep breath and try to relax if you get up on a fine morning and witness a downfall in the markets. These fluctuations are bound to exist only in the short run. If the markets see a steep rise, do not get greedy and bet all your investments on that particular fund which is performing very well in such periods. The upswing in the performance of these funds also, may not last for a long time. After a certain period they might burst like a bubble, wiping out all your investments. Obviously, the purpose of investing is to reduce or eliminate your dependence on debts like a loan or personal loan etc to finance your requirements.

Ensure that you do not get hasty or stressed out due to the volatility and move your investments across funds to try and bank profits every single day. The mantra for a healthy portfolio growth is to invest in diversified funds and wait till the investment tenure in completed or unless and until the particular fund you might have invested in, is analyzed to have turned out to be a very risky fund. Also, if you believe that your investments have reached a limit, before the tenure, where your particular financial requirement(s), can be achieved, you can exit the fund and save the amount in a savings bank account where they can earn an interest and not lie idle or put them in a fixed deposit, where they are entitled to earning an interest at the end of the tenure.

If you manage to act on your wits more than your emotional tendencies, you are on the right path of making the most apt choices for growing your funds in their respective investments.

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