Equity markets have largely been in the negative since 2008, except for between 2009 and 2010. Various factors, globally and at home, have contributed to the market uncertainty. Things have only turned worse in the past year.
If market experts are to be believed, this may continue for some time more.
According to data from Value Research, markets have lost three per cent in the past two years. The benchmark indices have returned barely two per cent in the last three years. The return figures for the past five years, too, look the same.
Many would have invested with a three-or five-year horizon for wealth creation in the long-term. And they would not have made money on their investments. Unfortunately, they would have associated certain goals with these investments. And they would now be wondering how to make up for the lost interest income.
Says Hemant Rustagi of Wiseinvest Advisors, “That’s why we ask investors to shift money to debt products six months to a year before your time horizon ends. But yes, you would not have made money in the markets in the past years.”
What are the options you have? Exit at current levels with whatever you’ve made? Or, extend your time horizons? Of course, if you absolutely need the money, you have no choice but to exit with whatever money you’ve made.
One option could be to redeem the debt portion of your portfolio and use it for your goal, if you need the money urgently.
But if you have other sources of income, then let your equity portion be invested for another year or two. “If you have other sources of sustenance, then it does not make sense to take the money out now,” says Suresh Sadagopan, a certified financial planner.
For instance, goals, such as buying a house can be postponed for now, keeping in mind the interest rate scenario. And this would be a better choice for those who are nearing retirement or have just retired as they can make use of the retirement benefits.
Amar Ranu, senior manager, research & advisory (third party products), Motilal Oswal Private Wealth says if you do need money, redeem the equity portion of your portfolio and invest in debt mutual funds or fixed deposits, that will give you regular income. “Also, if you do not need money urgently, redeem units from under-performing funds and invest in well-performing equity diversified funds,” he advises. He says equities are likely to perform very well in the next three to five years. These funds have also outperformed the benchmark indices in the last five years.
However, some beg to differ. They say if you do not need the money right now stay put in equities or funds. Reason: Equities are near their bottom and from here on, the chances of it moving upwards are high. On the other hand, interest rates will begin to move down soon and hence debt avenues may not perform. Therefore, it’s about time debt will become unattractive. Add to that, in the long run, equities will outperform debt anyway.
The kind of returns you will earn on equities depend on the time you’ve invested your money. Say, if you had started investing seven years ago, your equity portion today would have more than doubled in value. Whereas in the last 10 years, your portfolio would have gone up four folds. It is only in the last five years that markets have been trading within a range.