Should I invest even if my Fund is showing Negative Returns?
When
funds we have already invested in are showing negative returns like in the
current market scenario, it may actually make sense to add more to that
investment. Here is why ?
You
have invested 50000 in Axis Bluechip Fund at a price (NAV) of 32.22
and
have 1551.831 Units.
The
NAV of Axis Bluechip is today 26.50
So
the value of your investment is Rs.41123.52 down by Rs. 8876.48
or
-17.75%
Now
suppose you invest another 50000/- today in Axis Bluechip at 26.50.
You
will get 1886.792 Units
So
now you have invested 1 lakh and have
3438.62 Units
Invested
|
NAV
|
Units
|
Total Units
|
50000
|
32.22
|
1551.831
|
1551.831
|
50000
|
26.50
|
1886.792
|
3438.62
|
Let's
analyze the results
·
When you invest at
lower prices you get more units for the same amount
·
For the first investment
our cost is 32.22 per unit. after the
second investment our cost comes down to 29.08 per unit. Now we do not need the
NAV to go back to 32.22 to start gaining from our investment but once it
reaches 29.08 we start gaining
·
From 32.22 to 26.50
is a drop of 17.75% But from 26.50 to
32.22 is a rise of 21.58% !!!
Of course this whole exercise hinges on the fact that the fund is a well managed fund with a portfolio poised to recover in the coming months.
·
So investing when the
price is down is more beneficial.
Happy
Investing!
Michael Duarte