WHY SOME PORTION OF OUR SAVINGS SHOULD GO FOR EQUITY LINKED MUTUAL FUNDS? (AN ANALYSIS BY: SURYA SUBRAHMANYAM)

Expected Queries and Answers
a.       If I am investing an amount of Rs100000, are there any changes losing my principal amount of investment?	Yes. The Mutual Fund investments are subject to market risk. All the examples quoted in the blog carry “Moderate to High Risk” of investment. Please note that the returns shown in all my examples are not guaranteed returns. If you investment Rs100000 today, after one month it may become less than Rs100000. However, the historical evidence indicates that over a period of 18 years to 20 years, the returns are substantially high.
b.      Am I supposed to invest for a long period of 18 years or more to generate such returns?	Absolutely yes. Please do not expect short term gains and invest. Be a long term investor for better returns.
c.       To whom such investments are suitable, if we have to wait for a minimum period of 18 years?	Mutual Fund Investments with a time horizon of 18 years or more, are best suited for taking care of your Kids education, Kid’s marriage expenses, can be used as Retirement Fund.
d.      Do you promote or prefer any of these Mutual Fund Companies, individually?	No. I am also an investor as you are. It is my hobby to analyze the facts and place it. Since many of the investors cannot really invest in stocks, the Mutual Fund investments are better alternative. I am also not an advisor, unless you personally send me a mail and ask my opinion.
e.      Are there any criteria used for understanding the performance of these Mutual Funds?	Yes, There are certain ratios like Sortino Ratio, Sharpe Ratio, and Expenses Ratio etc. to understand the actual performance of these mutual funds.
f.        Do we have only Equity linked Mutual Funds?	No, My analysis is linked to Equity Linked. However, there are Mutual Funds are broadly categorized based on the risk appetite of the investor. People who have surplus cash and for short time, they may invest in liquid funds mutual funds. Similarly investors who prefer a blend of equity and liquidity may prefer Balanced Funds. Investors with a long term horizon with risk taking capacity may invest in Equity linked mutual fund schemes.
g.       Why should we invest in Equity Linked Mutual Funds, that too for a long period of 18 to 20 years?	During FY1995 (around 22 years before), the Petrol prices  in India was Rs20 and an LPG cylinder during the same period was: Rs120. By the year 2017, the prices of petrol increased by almost 4 times and Cylinder prices increased by 5 times. This means, a single individual if he can survive today by Rs10000, after 18 to 20 years, that individual would need at least Rs50000. (Source: https://in.reuters.com/article/india-fuel-reforms/table-fuel-prices-in-indias-capital-since-1989-idINSGE65209520100625) If we consider post office deposits or Bank Deposits, assuming that they pay 9% interest per annum (Currently it is less than 9%), it would take nearly 8 years for doubling. This means, in 20 years, the value of the Fixed Deposit grows only by 4.5 times (Max). Basically, as an investor, We need to look into the investments that would grow more than the rate of the inflation. Therefore, looking into the equity linked Mutual funds, based on our analysis are one among the other best options to sustain to the pressures of Inflation.
h.      From where did you collect the data and the relevant information?	All the data are collected directly from these Mutual Fund Companies (from their websites).
i.         Currently the Sensex is at 32000. What will happen, suppose if the market comes to 25000 after certain time, due to any factors like wars / political stability etc.? How should I respond to such incidents or events?	Friends, whatever the money you are putting in these mutual funds, it is all your hard earned money. My Personal Strategy: Let us assume that we invested Rs100000 in a particular fund and we got 100 Mutual Fund Units each one for Rs1000. (100 Units x Rs1000 each Unit). Let us assume that after certain time, due to any factors, the Unit value has become Rs600 (Due to market fall). The value of our investment will become Rs60000 (100 Units x Rs600 each Unit). What is suggested is to buy another 100 Units at Rs600 with an additional Investment Rs60000 (100 units x Rs600). By this we will be holding 200 Units of Investment. Our total investment will be Rs160000. (Earlier Rs100000 and this time Rs60000). Therefore, the cost of each unit will become Rs800 (Rs160000 divided by 200 units, we are holding). Finally to conclude: Whenever the market falls, investment should increase, so that cost per unit will fall.
j.        What is the purpose of this article and sharing the information?	Sincerely, there are no personal interests and not expecting any fee based service from anyone. I have friends working in many sectors (IT / Banking/ Pharma/Education…), but still having no time or not able understand the important of Equity Markets. The very purpose of the article to create awareness and let you know that some portion of our savings should go towards Equity Linked Mutual Funds in the long term.
k.       Which one is better? One time investment or Systematic Investment Plans (SIP)?	When we invest for one time, we may be buying Mutual Fund Units either at lower or higher cost (depending upon the market movements). So we cannot reduce this cost of units, unless we buy units again when the market is down. But whereas in Systematic Investment Plans (SIPs), in 18 years, we will see at least two to three business life cycles. Some units are purchased at a higher price and some units are purchased at a lower price, during these 18 years of investment. So the Mutual Fund Unit prices get adjusted to average pricing on their own. So, SIPs are more preferred than one time investments.
About the Author of the Article: The Author of the Article is a Chartered Financial Analyst from ICFAI University, MBA and the Globally Certified Financial Risk Manager. Mail id (cfa.surya@gmail.com)