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AS WE enter 2012, BSE Sensex is down by more than 25 per cent from the peak level of around 21,000 it touched in January 2008, and a level it again tested at the end of 2010. Equity investors in India have been disappointed by the returns they have got over the past four-five years.

Yet, over the past 10 years, BSE Sensex has given a very decent 17 per cent compounded annual returns from the end of 2001 to the end of 2011, which beats even the present high inflation levels by a very decent margin.

Since 1979 too, over the past 32 years, from a base of 100, BSE Sensex has risen to the present level of around 15,400, a 17 per cent compounded annual returns till the end of 2011.

This in a sense captures the way the equity market has played out in India. Equities may not yield returns for several years and test the patience of investors; yet over very long periods of time, have rewarded investors well.

India is faced with problems in the near term with regard to some of our key macro-economic parameters, such as higher fiscal deficit and high inflation, leading to high interest rates, resulting in slower economic growth and a higher current account deficit and slower capital inflows into the country, leading to weakness in our currency. Lack of and slow policy response from the government is not helping matters either. The euro crisis has added further uncertainty to the global economic landscape. All these have resulted in earnings disappointments from many sections of the market and consistent earnings downgrades. The earnings downgrade season does not seem to have ended.

So, on the whole, sentiment in the equity market is down and it is keeping the market under pressure.

However, in this gloomy scenario, there are some positive takeaways. Firstly, Indiaspecific issues, such as inflation are at least likely to show a cyclical leg down because of base effect and slower economic growth, and, in any case, are less structural than the problem of the end of debt super-cycle being faced by developed markets.

The solutions to the many issues that the Indian economy faces are known.
They may be difficult to implement from a political angle, but, when push comes to a shove, we believe, they will be implemented. Secondly, factors, such as rising aspirations, under penetration in virtually every consumer sector, underleveraged balance sheet of Indian consumers, the ingenuity of Indian entrepreneurs, India's prowess in knowledge-intensive sectors, the demographic advantage, which India has because of a young population, and se of a young population, and the multiplier beneficial impact of incremental improvement in infrastructure are all very strong structural forces at work.

Finally, investors would do well to remember that investment returns in the equity market are counter-cyclical to the prevailing sentiment in the market. When sentiments are down and the near term looks not so rosy, what benefits long-term investors are low valuations and the ability to buy promising businesses cheap. Ultimately, superior equity market returns are about "buying low and selling high". While poor near-term sentiment may be disheartening, it allows us to buy low. With a significant leg down in the market in 2011, valuations in the Indian equity market have substantially corrected, both on price-to-earnings basis and price-to-book value basis, and it is trading at a discount to historical averages.

Therefore, I believe that investors should use the present weakness in the equity market to systematically continue to invest in well-managed equity mutual funds and should continue to maintain the right weightage of equities in their overall asset allocation based on their age, risk tolerance and financial goals.  

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Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

 

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Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

 

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These Application Forms can be used for buying regular mutual funds also

 

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

1. HDFC TaxSaver
2. ICICI Prudential Tax Plan
3. DSP BlackRock Tax Saver Fund
4. Birla Sun Life Tax Relief '96
5. Reliance Tax Saver (ELSS) Fund
6. IDFC Tax Advantage (ELSS) Fund
7. SBI Magnum Tax Gain Scheme 1993
8. Sundaram Tax Saver

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