In today’s edition of DNA, Ritesh Jain, CIO of TATA Asset Management Ltd makes a case for investing in Mutual funds since returns from Real Estate going forward are going to be impacted owing to both a excess of supply and changes in government rules with regard to black money (Link). In a way, we agree with his view that forward returns from Real Estate may not be as interesting as it had been in the years gone by (specifically between 2005 – 2010).
But that does mean that investing in Mutual funds at any point of time is the best way forward. While we strongly believe that for most investors who cannot afford time and investment to analyze the markets on their own, the best path is by way of Mutual funds, there still lies the fact that even Mutual funds have big risks.
To buttress my case, lets look at one of the top Equity funds of Tata Mutual Funds – Tata Pure Equity Fund – Growth.
The scheme has been a steady compounder with CAGR returns sinec inception coming in at 20.19%. But that return has not come without some significant volatility. The fund has twice in the last 15 years seen a draw-down that exceeded 50%.
To give you a better picture, assume you invested into the fund in early March 2000 based on the exuberant markets you had heard about and how rather than risk in direct equity, Mutual funds were a better tool. Well, the next time you saw the fund NAV return back to your purchase price was in December 2003.
While I may have chosen the most extreme example, my point is that while Mutual funds are good investments, even there timing matters a lot. Invest in a wrong time (such as the early 2000 or late 2007), and no fund manager can provide you the cushion you so desperately wish.
As I wrote in an earlier post, some of the best performing funds saw big draw-downs in 2008 / 09 and in a way unless one really slept off during the period, the pain of the losses (even though they would be Notional) is too hard to ignore.