You love supermarkets, You get everything you need at the supermarket. Fruits, vegetables, packaged, foods, bread, soaps, dry fruits well pretty much everything. Define supermarket in one word. A place where you get, pretty much everything you need. Then there are the discounts, You get a discount on almost any item bought at the supermarket.
You have equity mutual funds, where your money is invested in stocks of companies. Equity mutual funds are of different types. Equity diversified mutual funds invest your money, in stocks of different companies, across different sectors. You have sector funds, where your money is invested in stocks of companies, which invest in businesses of a particular industry or sector. You must be wondering what’s common between super markets and equity mutual funds? Well, lot more than you think.
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A new supermarket has come up near your home. How much time do you think it will take before the super market makes good business and breaks even? Well…definitely not in a few months. The supermarket takes a few years to grow big in size and make profits.
Now investing in a mutual fund especially an equity mutual fund, is investing in businesses across different sectors. In an equity mutual fund, the fund manager invests in stocks of companies across different sectors. Now, investors might pay more money for the stocks of a Company, but eventually….the price of the stock follows the earnings of the company. If you want to make money from equity mutual funds, you must stay invested for at least 3 to 5 years. Only then can you expect good returns from your equity mutual fund.
A supermarket experiences both ups and downs, as it runs its business. There are times when the supermarket has a very poor season. Does the owner close down the supermarket? No, he stays put until the better season arrives. The owner prepares for better times, which will surely arrive. Now, there are times when stock markets crash.
It might be due to a slowdown in the global economy or the Indian economy facing bad times. In these bad times, even though you have invested in a good equity mutual fund, your investment could lose value. Almost every equity mutual fund, goes through a bad two or three years, because of tough market conditions. You have invested in a good equity mutual fund. Show faith in it. Stay invested in the equity mutual fund during tough market conditions and with time, you will surely make a profit.
You go to the supermarket, where you find a number of products and items. Do you buy whatever you find on the shelves of the supermarket? Definitely not….You buy only what you need. What if items you don’t need are sold at a discount? Well….you will still not buy them. Why? Because you don’t need them. Investing in equity mutual funds is no different. You invest in equity mutual funds, only if you are comfortable with risk in your investment. Your investment should help you realize your financial goals.
See also: What is Primary Market?
Remember: You would have come across this warning. Investments in equity mutual funds are subject to market risk. Please read the offer document carefully before investing. An investment in equity mutual funds is very risky, but gives great returns.
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