Equity Investment for Whom?

One 5-Mar-2009, one unit of Franklin India Prima Plus costed you Rs.95.6675. Exactly one year later, the NAV is Rs.195.8869.

For better understanding, Rs.1,00,000 (One Lakh) invested on 5-Mar-09 is today worth Rs.2,04,758. That is a clear 100%plus profit.

Now Everyone wants to make money. And when people see such returns, they are least bothered about their risk profile. They plunge in to equities with the hope of getting high returns. But High returns is married to High Risk. High Risk itself means the chance of losing. But investors tend to ignore risk in the haste to make quick money.

It is a day light truth that Equity Investments are for long term. It means, in the long run equity investments invariably give only positive returns. Investors who are lured by short term profits need to keep in mind about the risk involved in such speculations. But if you stay invested for the long run, you invariably make profits.

Now click the table below. One of the succesful MF scheme is Franklin India Prima Plus fund. It was launched in 1994. Since 1994, if you calculate the one year return for each year (rolling returns) , then the best return till 2010 has been 234%. Similarly there have been bad years. In those years the worst return has been -49.90%. The point to be understood is that if you remain invested only for one year, there is a chance you may make a very good return as high as 234% and you need to be prepared to face a 50% erosion in capital. And the chance of getting positive return is 71% and chance of losing your money is 28.9%.

For 3 years rolling return, similar result of best return has been 76.90% and worst return has been -14%. Here the chance of making a positive return is 91% and chance of losing money is 9%.

Now for a five year rolling return, Maximum return has been 56.90% and Minimum return has been 12.60%. And the beauty is there is NO CHANCE OF NEGATIVE RETURNS.

A few things to observe here:
1) As the duration increases, your chance of losing money decreases to NIL
2) As the duration increases, your get optimal returns and not exceptional returns.
3) Due to fund managers expertise, Well Managed Mutual Funds like Franklin India Prima Plus deliver better returns than their bench mark.

If the explanation/conclusion is not clear, do call us for clarifications.