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

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Holding Period

Posted by Muthu on March 19, 2015

Recently I wrote about Dalbar studies and performance gap.

From 1984 to 2014, for a period of 30 years, the S&P 500 has given an annualised return of 11.11%. Whereas equity fund investors earned only average annual return of 3.69%. The performance gap is 7.42%.

Why performance gap? When a fund, after expenses, over a 10 year period, gives 18% returns, the investors also should have also made the same. But this rarely happens in a real life scenario. Investors invest more when the markets are high and redeem more when the markets are low. Added to that they keep chasing performance. A good fund is ditched because it had a bad year. A risky fund or not so good fund but which shows recent good performance gets lot of inflow. All these ensure that investors as a group earn less than what the funds provide. In many cases, people actually lose despite markets and funds doing well over a period.

Prashant Jain, one of the best fund managers in the country, in a recent interview has mentioned that only 2% of the AUM in HDFC Equity Fund is more than 10 years old.

I was going through an article in Business Standard today. AMFI (Association of Mutual Funds in India) has recently released some data. As per the same, 25% of the equity investors hold the fund for a period of 6 months or less. 50% of investors do not hold for more than 2 years. The median holding period of investors is barely 18 months to 24 months.

From what Prashant Jain has mentioned, hardly 2% of the investors may be holding funds for 10 years or above.

As Morgan Housel says, “The single most important variable for how you’ll do as an investor is how long you can stay invested… Time is massively powerful.

People who stay invested for 10 years or 20 years reap the benefit of time and compounding.

As I’ve emphasised many a times, you are rare ones. It’s rare for investors to have a long term vision of 20 years, ignoring ups and downs of the market, stay focused and stay the course.

We are lucky to have you as our clients. We have many clients who have been doing SIP without break for 8 years, 7 years and so on. Around 50% of our clients have been doing SIP for 5 years or more. People who became our clients from 2011 onwards would also be joining the above list in the years to come. They are also been regular in their SIPs for last 4 years, 3 years and so on.

At some point, we would have 90%+ our clients who have been doing SIP for 10 years or more against the industry average of 2%. The remaining 10% would have been new clients (i.e.) clients lesser than 10 years with us. We are focusing on creating a unique investor community of hundreds of families with real long term orientation and disciplined investing.

The steps to get rich are easy. But self mastery is extremely difficult. Discipline, patience and long term orientation are the key to self mastery in investments.

As an advisor, I’ve taken it on myself to ensure that you practice this self mastery. I would always stand by you and support you toward this.

In my professional life, I’ve a big ambition. I want hundreds of families to make huge wealth through equity investing by practicing this self mastery. By huge wealth I mean, tens of crores in many cases and 100+ crores in at least few cases.

Already many of you have been doing SIP for last many years. You’ve started seeing the results. You would be amazed to see how much you would be worth in next 10 to 20 years, if you continue in this path.

Stay the course.

4 Responses to “Holding Period”

  1. bvmallikarjunrao said

    is Mirae asset India Opportunities fund good. what is the maximum no. fund we should have in portfolio.

    • Muthu said

      It’s better to have not more than 5 or 6 funds. Six funds need to be different categories like Largecap, midcap, multicap etc. preferably from 6 different fund houses.

  2. R KANTHAVEL said

    Hi, Can you suggest 4-5 finds across all market caps for 10 years SIP

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