UTI Mastershare have provided 15.31% returns for last 30 years - If you had invested Rs 1 lakh in UTI Mastershare, Thirty-years ago, it would have grown to Rs 71.8 lakh. During the last 30 years of its existence, India's first net asset value (NAV)-driven mutual fund has generated returns at a fabulous compound annual growth rate (CAGR) of 15.31%. Also, it is not the only equity scheme to have delivered superlative returns. And yet, retail investors continue to shy away from investing in the stock market. The share of domestic retail investors in Indian equities, which has almost been stagnant for the past six years, is barely 7-8%.
The risk of staying out While equity investments carry short-term risk, avoiding the asset class altogether, say experts, is no less risky from a long-term perspective. This is because Indian equity market has generated better returns compared to other asset classes and is expected to do the same in the future. Even from a tax-saving perspective-given that for a large number of domestic investors investment is synonymous with tax planning- the equity-linked savings schemes (ELSS), which offer tax benefits, have outperformed traditional debt products such as the Public Provident Fund (PPF). SBI Magnum TaxGain 1993, the ELSS scheme with the longest available NAV history, has generated an annualised return of 16.73% during its existence of 23-odd years. This is markedly better than the 8-9% returns given by the PPF during the same period. The lowest return that SBI Magnum TaxGain 1993 generated was 12% between 2000 and 2015, still higher than the PPF. This is yet another proof that, over the long-term, the risk-reward profile of equity is markedly better.
ELSS not risky in the long-term Equity-linked savings schemes are a much better tax-saving investment option. Investment of Rs 5,000 could make you a crorepati At a CAGR (compounded annual growth rate) of 8%, a monthly investment of Rs 5,000 in a debt instrument will grow to Rs 70.88 lakh in 30 years. But if you put the same money in an equity-based instrument that gives 12% compounded returns, your corpus will be more than twice as big at Rs 1.54 crore . Even investors who don't have a huge surplus to invest can gain from small but regular investments in equities. Since the Indian equity market is now much more developed compared to the eighties and the nineties, those looking to invest now need to moderate their return expectations. But, even at a moderate return, equity can still help build a bigger corpus for you. Equity-based instruments can make you richer in the long-term Due to power of compounding, even a 1-2 percentage point higher return can yield a much bigger corpus than what a pure debt-based investment will deliver.
Why investors stay away Despite the fabulous wealth generation opportunity that the stock market provides, too many investors shun equities altogether. Many of them stay away because of their previous bad experience with stocks. Stocks can be volatile. The markets fell by more than 50% during 1992-93, 2000-2001 and 2008-9, only to bounce back and generate decent average returns for investors who stayed put. However, often investors need money and are forced to exit the market at a loss, resulting in a fear for equity investing.