Should I invest even if my Fund is showing Negative Returns?

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