Should volatility worry you while investing in Equity MFs?

This year being an election year, we have seen a lot of volatility in the equity space with some days markets giving good surprises and some days bad. However, as an equity mutual fund investor should you worry about these short-term volatility if your investment tenure is long term say 5 years and above? The answer to the same is no.

To understand this let us assume that you invested on January 1, 2008 and remained invested till December 31, 2019. Then the average returns that you may have earned on large-cap, mid-cap and small-cap funds would be 6.24 per cent, 8.67 per cent and 8.29 per cent, respectively. The maximum returns that you were able to earn in large-cap, mid-cap and small-cap funds would be 9.55 per cent, 13.57 per cent and 12.12 per cent, respectively. Now let us assume the worst-case scenario, the minimum returns that you may have earned for the period for large-cap, mid-cap and small-cap funds is 0.96 per cent, 2.92 per cent and 3.81 per cent, respectively. So, if we look at it in this way then you would have not lost any money investing in equity mutual funds, even if you had entered in the year 2008 which witnessed the highest amount of volatility. Though the severity of volatility was high in 2008 which is not witnessed currently. If we look at the average returns provided by the equity MFs during the election period of 2009 and 2014 then on an average they gave 79.31 per cent and 46.93 per cent returns.

So, it is always wise to start investing in a time of volatility. Though one should take investment decisions based on their individual risk profile and financial plan as this will guide them with investment decisions. If your investment is for the short-term then investment in debt mutual funds would be good and if your investment horizon is long-term then investment in equity MFs is good.