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

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Losing 15% to save 1%

Posted by Muthu on January 27, 2017

Karvy is one of the leading RTAs (Registrar and Transfer Agents) for mutual funds.

They have recently shared an interesting data.

81% of investors who invest directly (without an advisor) stay invested for less than a year. In fact, only around 4% of them stay invested for more than 3 years.

By going directly, they would have saved 1% on cost. But by redeeming within a year, due to panic induced by volatility, they would have most likely suffered some loss of capital. This would be much more than the 1% saved. Not only that they have also lost the opportunity to create wealth at an expected return of 15% over a decade.

We’ve seen earlier that the CRISL AMFI Equity fund index has never given a negative return for any 5 year period on a daily rolling basis since inception.

So investors who hold for long term tend to avoid loss of capital and also create wealth. This is made possible by a good advisor.

Karvy has also mentioned that only 28% of investors who invest through IFAs (Independent Financial Advisors) redeem within a year, due to panic arising out of volatility. Whereas 39% of them stay invested for more than 3 years.

In our case, other than a small minority, most of the clients are staying invested for many years with a commitment to hold not less than 10 years. To illustrate, a client who is with us for last 5 years, is holding on to his portfolio for 5 years, with an intention to hold at least for a decade. Our clients are a rare tribe. Most of them stay the course.

I would be happy to see the industry number moving from 39% to around 75%. But if you notice, even at present, IFAs are able to hold ten times more (4% direct Vs 39% through IFAs) clients for a period of more than 3 years.

Like any professional relationship, we too stand to gain financially from our relationship. But we’ve completely aligned our interest with that of yours so that it is always a win-win situation.

The benefits you get from a good advisor are many times the cost you incur for availing his services.

The above data reinforces this.

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