Why invest in equity and equity Mutual Funds?

Equity is one the key asset class which beats inflation hands down in the long run. Performance of Asset Classes over 35 years (Annualized Returns) – Inflation @ 7.57%        Illustration disclaimer: The above example is only for illustration purposes & shall not be construed as indicative yields/returns of any of the Schemes of Canara Robeco Mutual Fund. Assumptions and the source of this table given below Building wealth through equity requires tremendous patience and discipline. Remember, Rome was not built in a day! One might come across various rags to riches stories in the stock market and stocks giving multi-bagger returns over a period of time. Normally, we tend to get carried away by looking at historical returns and make the decision to invest in the stock. Investing in a single share or pool of few shares can be very risky as it is very difficult to identify the next big success story. To reduce the risk of investing in a single stock, one can look at investing in a portfolio of stocks. Mutual Funds: Mutual funds are run by a team of professionals called the Fund management team. Their expertise is to follow the performance of various companies & sectors closely and identify the future performers, so that a basket of stocks can be created. [caption id=“attachment_2561774” align=“alignleft” width=“350”]  Image Courtesy: Canara Robeco[/caption] A farmer in his farm land doesn’t grow only one crop. For ex: a coffee estate owner  would grow coffee, pepper, silver trees, Oranges, Jack fruit and maintain live stock  all at once to diversify his risk from coffee prices. Mutual funds become a viable alternative to investing in equity directly yet reducing the risk. Mutual Funds generally are made up of a combination of 40 to 60 stocks (the number of stocks in a fund can vary based on the investment objective or the fund management style) in one fund that helps investor diversify the risk. Diversification could involve investing in multiple stocks across various sectors. Isn’t it better to bet on a team than on a single player? Performance of Large cap and Diversified Equity Funds:  Source: Data based on CRISIL – AMFI Mutual Fund performance index Illustration disclaimer: The above example is only for illustration purposes & shall not be construed as indicative yields/returns of any of the Schemes of Canara Robeco Mutual Fund. In the long run, mutual funds have beaten inflation hands down and given consistent returns in the long run. Assumptions and Source for the above-mentioned table:

• It is assumed that Interest earning from Fixed Deposits are taxed at 20%. The applicable tax rates for capital gains from Gold and Real Estate investment suffers capital gains tax of 20% after considering indexation (Cost of Inflation index/CII 1981-82 - 100 and 2014-15 - 1024).
• Source of Fixed Deposit and Gold rates are from www.rbi.org.in and real estate data based on an article published in Live Mint. A rough rate of Gurgaon DLF City land in 1980 costedRs. 2 Lakhs and now the investment is turning to Rs.2 Crore approximately. Based on this data, we have arrived at the returns of real estate investment.
• The 35 years tenure is from 1979 to 2014.
• The Sensex returns are calculated for the period of 1979 to 2014. In all the given asset classes in the illustration, it is assumed that one time investment of Rs. 100,000/- invested in 1979 and current valuation as on 2014. Source of Sensex returns: www.bseindia.com
• Source of gold returns: www.rbi.org.in

Disclaimer: Mutual fund investments are subject to market risks, read all scheme related documents carefully. This is a sponsored post.