Investing in Equity? What's your horizon???

If your horizon is the much popular 3-years, as so proudly recommended by MF agents and fund houses (especially for ELSS), read this article to get a taste of reality.

What has been the worst performance of Nifty (a reasonable blue-chip index) over a period of 3 years? The answer is -5% (yes, that is a negative), based on data from 1990-2006. That is assuming you invested at an average price (via SIP) and were not subject to volatile ups & downs during the year. On 4 such instances (out of 14), it has shown -ve returns. And also remember that this does not factor in inflation at all.

The story with Sensex (a deeper blue-chip) isn't too rosy either. It has shown a worst 3-year return of -8%, based on data from 1980-2006. On 3 instances (out of 24), it has shown -ve returns. Again, inflation has not been accounted for.

So, how many years do you need to stay put to be assured that you won't lose money? The correct answer is not 5 or 7 years, but 10 years (for both Nifty & Sensex). Are you ready for that??? If you get sold on the idea that Mutual Funds can do better than the market all the time, you are living in a fool's paradise. Unless your MF agent can give it in writing (with appropriate collateral) that the fund he is recommending will give +ve return in 3 years, don't get swayed.

The intention is not to scare you away from equity, but to help you understand that while everybody agrees that Equity scores over the long term, the definition of long-term is flexible. However, instead of basing your decision on sweet-talk or hard-sell by agents, take a hard look at the real numbers from the past. Those who forget history are doomed to repeat it...