Here's what to expect from short- to medium-term equity investing
Equity as an asset class is undeniably volatile and cyclical. Long-term investments in equity typically help minimize these risks and harness the power of compounding. But what if you don't have the luxury of a long-term horizon or the patience to ride out market swings? Can equity still be a viable option for short- to medium-term investors?
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To explore this, let’s analyse the performance of the Nifty 500 TRI, which tracks the top 500 companies by market capitalization, over the past 20 years (from 1 January 2005 to 31 December 2024). We examined how often the index generated returns of less than or equal to 0% (negative or zero returns) versus returns greater than or equal to 10% (fixed income/ inflation-beatingreturns) across 1, 2, 3, and 5-year rolling periods.
Short term (1-2 years):
Over a one-year and two-year rolling period, the Nifty 500 TRI generated negative returns (≤0%) only 13-18% of the time, while it delivered positive returns 82-87% of the time. In fact, it generated returns greater than or equal to 10% (inflation-beating) in 60-65% of the time.
Looking at three-year and five-year rolling returns, the index generated negative returns only 1-5% of the time, while positive returns were seen 95-99% of the time. The index also provided inflation-beating returns (≥10%) 72-76% of the time.
Frequent positive returns: In the short and medium-term, the equity index often delivered positive returns, highlighting that equity is a viable option even if you don’t have a long-term horizon.
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Strategic entry: To minimize risks and optimize returns, it is advisable to invest
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