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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Time Counts

Posted by Muthu on July 27, 2014

Most of us believe that we would do well in markets if we buy in bear market and sell in bull market. This is definitely one way to make money. It’s much better than investing when markets are high and selling when it tanks.

Another way, which is rarely followed, is to invest for real long term- 10 years or 20 years or 25 years- during one’s entire career for retirement or even for the next generation. Forget about bull and bear markets and simply keep investing on an auto pilot mode. This way is not for making money but to build a greater wealth.

In this piece, I would like to take example of HDFC Equity Fund which is in existence for close to 20 years.

If you’ve invested Rs.10,000 per month in this fund for the last 10 years, it’s current value (as on 30th June 2014) is Rs.34 lakhs. You would have invested Rs.12 lakhs over a 10 year period resulting in the above corpus with an annualized return of 19.79%

If you’ve invested Rs.10,000 per month in this fund for the last 15 years, it’s current value (as on 30th June 2014) is Rs.1.49 crores. You would have invested Rs.18 lakhs over a 15 year period resulting in the above corpus with an annualized return of 25.01%

If you’ve invested Rs.10,000 per month in this fund for the last 19.5 years (since it’s inception), it’s current value (as on 30th June 2014) is Rs 4.57 crores. You would have invested Rs.23.4 lakhs over a 19.5 year period resulting in the above corpus with an annualized return of 25.76%

10K per month has grown to Rs.4.57 crores in nearly 20 years- this is the real power of equities, real power of compounding and real power of disciplined investing. In the above example, what a huge difference it makes if you stay invested for 20 years instead of 10 years!!

As you are aware, that is why, we suggest equity for a minimum period of 10 years. We do not encourage any investment tenure lesser than that.

Nilesh Shah, in a recent interview to Economic Times, shared the following data: “If you had invested Rs.5 lakhs in HDFC Equity Fund in January1, 2003, its value on June 30th, 2014 is Rs.92 lakhs. Another example is Sundaram Select Midcap, the value of which has moved from Rs.5 lakhs to Rs.1.26 crores in the same period. Such is the power of equities. And this is after we’ve seen worst of the crisis and inflation.”

I’ll give you another example. Investing Rs.2500 per month would have been possible for most of us during last 20 years. Rs.2500 per month invested in Reliance Growth Fund since 1995 is now worth more than Rs.1 crore.

Who would have reaped this kind of returns? Someone who is able to ignore the gut wrenching pain of bear markets, stay the course on investment across market cycles, focusing real long term- which means not less than 10 years, would have built greater wealth even by small but steady investments.

More than the fund choice or hyper active fund management by the advisors, what would have mattered is the investor’s allocation to equity through diversified equity funds with a real long term outlook.

If you follow the diversified equity funds route, for a tenure of 10 to 20 years, with regular disciplined investing, in a growing country like India- I don’t see how you can ever go wrong.

The short term gains you’ve been making are nothing when compared to what kind of wealth you can build for your retirement or for your children. The moment you get the time (tenure / holding period) right, everything falls automatically in place and equity market’s wealth is all yours.

Never forget- Time counts.

5 Responses to “Time Counts”

  1. Shankarraju said

    Hi Muthu, It makes sense to increase the Time in the market than timing it. I spoke to few of my friends they see equities similar to gambling … and keeping their money in bank or in Real estate. Investor education is very lagging in our country … The funny thing is most of the people spend 100% of their effort in earning money but not interested in growing it…

  2. Kumar said

    Do you similar data for direct equity investing like in shares like Colgate, HUL etc.?

    All the above you said, does it apply to direct investing in stocks like Colgate, HUL?

    • Muthu said

      Quality compounding machines would definitely give such returns. But I don’t have such data readily available. You may check with brokerage houses which would have access to such data bases and analytics software.

  3. ratnakumar72 said

    Excellent advice as always…your articles give moral boost to the investors who are long term investors,,but feel feared when markets are in correction mode…

  4. MRHDK2012 said

    Muthu, Very good article. Appreciate you bringing out these insights.

    However, everything looks perfect in hindsight. Very few people could afford to invest Rs. 10,000 per month in a single fund in 1995. My take home salary in 1995 was about Rs. 12,000.

    Also, mutual funds and fund management have matured in last 10-15 years. Now we know which are good/bad /ugly funds. I had invested Rs. 2,000 in Morgan Stanley’s maiden scheme in 1995 and you know what happened to them. I had also invested Rs. 2000 in Taurus Mutual Fund around the same time. I have tried hard to redeem my investments but they are not able to locate my folio. If you have folios in UTI, you will know how difficult was redemption with them. They had not heard the term customer service.

    On other note, last year I was watching a panel discussion on investing on CNBC. CEO of AMC of American lineage said he invests mostly in FDs and bonds.

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