Is equity a safe long-term investment?

Equity is an asset class known for its volatile nature and most concerned and feared by investors. Usually, investors enter the stock market with the mindset of making substantial profits in a short time. Because equity is highly volatile over a short holding period, this leads investors to believe that equity is a risky investment.

However, the right approach would be to hold equity for a longer period of time, and you will find that equity is not a risky investment. This can best be explained by looking at the data of about 26 equity mutual funds that have stood the test of time and have been there for 25 years or more. The UTI Mastershare Fund, launched in 1986, is the oldest fund and has provided a 10-year average (with daily variation) rotating return of 12.5% ​​per annum (annual) from 1997 to 2022. The 10-year average of rolling returns suggests that investment in the fund will grow rapidly.


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Now, let’s take the case of a person who equally invested in all 26 funds in 1997 and held them for a period of 10 years. The average return would be 16.8%/year from 1997 to 2022. The worst case scenario over a 10-year period for someone who has equally invested in all 26 funds would be 9.5%. /year—more profit than an investor would earn from fixed deposits.

Now, let’s dive into these 26 funds and take the case of an investor who chooses only one fund and continues to invest over a 10-year period. The luckiest investor will earn 51%/year while the unluckiest investor will lose 1.9%/year In 95% of cases, i.e., in about 135,600 out of 1 42,500 cases, one 10 year investors will earn more than 6% return which means they will earn more than that amount from FDs. In 99.4% of cases, i.e. in about 142,400 cases, a 10-year investor will have a positive return indicating that they have not lost their capital.

The data above clearly shows us that investing in stocks is risk-free for a long-term investor. So, to achieve your investment goals, you must hold equity and make a meaningful equity allocation in your portfolio. Furthermore, risk can be minimized by following some basic principles of diversification and reviewing your portfolio periodically.

Feroze Azeez is the executive vice president, Anand Rathi Wealth

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