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Do you want to invest in Equity Mutual funds for higher returns but you’re uncomfortable with the volatility?

Is it possible to make the investing journey smooth?

You may have seen TV shows on investing or read articles in which financial experts often suggest investing for the long term to earn double-digit returns. With great enthusiasm, you start your investment journey with the mindset “I’ll invest for the next 7 to 10 years for wealth creation, my retirement or my child’s education. I’ll hold it for the long term and not be perturbed by short term movements.

One or two years down the line however, you see that your investments have gone nowhere. You start having second thoughts. Is this the right investment? Will the markets ever recover? Gold is delivering such high returns. Should I jump ship and invest in fixed deposits, real estate, and gold?

As investors, our inability to control our emotions of fear and greed during market ups and downs makes us enter and exit the market at the wrong times. In our bid to chase higher returns, we tend to switch funds regularly, latching on to the latest best performers.

Investor_Behaviour

Research at the industry level shows that the average holding period of an SIP is about 2 years. This is one of the primary reasons why investor returns in equity funds are lower than the fund returns.

Where does the Investor go wrong?

Our investment decisions are made based on what is happening around us. We try to time the market by looking for the sweet spots during various market phases.

  • When the market goes up, we are tempted to invest.
  • When the market falls, we panic and frantically sell.
  • When the markets are volatile or flat, we get confused as to when to invest and procrastinate our investment decisions.

Even when an investment’s performance is good, a large number of studies show that the investor returns have been less than the investment’s returns.

Fund_Returns_Vs_Investor_Returns

The analysis used all actively managed diversified funds. Investor Returns represent the total returns that were realized by all investors accounting for the inflows and outflows in each scheme.

Investors will continue with their SIPs only when their investing journey is less volatile. We can remove the psychological barriers of greed and fear by adhering to one of the most popular sayings in the finance industry “Buy Low and Sell High”. Sadly we often do the exact opposite. We withdraw money when the market is at a low and become aggressive when the market rises.

So how can we make this investing journey less volatile and overcome irrational investor behavior?

This is where Balanced Advantage Funds come into the picture. These funds invest in equity as well as debt instruments in a specified ratio as per the investment mandate of the fund. They help you to ride the equity wave while maintaining a lower risk profile.

Deciding how much to allocate to an asset class and when to do it is a tedious process. The equity component seeks to deliver long term returns, while the debt component provides stability to the portfolio. When the markets are high, the fund manager sells equity. Likewise, when the markets are low, the fund manager buys equity. The discipline followed by such funds helps investors.

Equity_Valuation

 “Buy Low and Sell High” sounds very simple. While implementing it is very difficult as our human tendencies of greed and fear get in the way. This is the very benefit Balanced Advantage Funds, by their nature, provide to their investors.

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