Long Term Equity Investments Will Not Be Affected By Elections

With India in the grip of election fever, even the financial market is feeling the chills. Nervousness is evident specifically in the equity market. Benchmark S&P BSE Sensex index rallied around 8% in March and has crawled to about 1% between 31 March and 21 May. The frailty of investor sentiment can be gauged by the fact that India VIX or India Volatility Index, an index measuring the expected market volatility over the next 30 calendar days, was trading close to 30 on 22 May, its highest value since the index closing on the day before election results in May 2014. In this scenario, here’s a word of advice for equity investors: shrug off emotions and stay invested over the long term to create wealth. Short-term volatility in equities is par for the course, election or no election. Current volatility in the equity market should not be a surprise. History reveals that previously, too, elections triggered sharp fluctuations—positive and negative—in the short term of up to a year.

Short-term anxieties apart, investors should stay focused and invested because equity has the potential to create wealth in the long term. A longer horizon helps smoothen out creases caused by short-term volatility. 

While staying invested in equities is one part of the story, having the wherewithal to identify good companies and also the capital to invest might not be an individual investor’s cup of tea. Instead, investors can look at investing in equity through professionally managed investment avenues such as equity mutual funds. In fact, investors can utilise the systematic investment plan (SIP) route to invest in equity mutual funds to avoid the risk of timing the market, get the benefit of rupee-cost averaging and invest as per their affordability.

Investors should, however, do the due diligence on the underlying scheme features and portfolio parameters and map it to their risk-return profile before investing. Also, investors should regularly track and monitor the scheme’s performance to weed out underperformers and rebalance to maintain long-term growth trajectory.