Why Patience and Perseverance Are Important When Investing in Mutual Funds

November 9, 2021 Mutual Fund

For a successful relationship, it is important to nurture it with understanding, care, patience, prudence, and perseverance. If a sound approach is followed, just as wine (and whiskey), relationships can get better over time. This analogy applies to mutual fund investments as well. Investors, however, seem to undermine these values while approaching their mutual fund investments.

In favourable or positive market conditions, everyone endeavours to make or build wealth quickly; but in a challenging market scenario, the grit to stay invested is often missing even when fundamentally sound investments are made.

The data published by the Association of Mutual Funds in India (AMFI) reveals that around 58% of the equity AUM is held for less than two years. And only some retail investors hold around 55% of equity assets for a period greater than two years.

Graph 1: Average holding period of equity and non-equity mutual fund investments

(Source: AMFI)  

In other words, 45% of retail equity assets get redeemed within a period of two years, which is an alarming absolute figure.

Here are the possible reasons why equity mutual funds are not held for a period beyond two years:

– Investments are made without a financial goal in mind.

– The objective may be to make fast profits when market conditions are favourable.

– Take money off the table when the desired returns are clocked much before the time taken otherwise.

– Redeeming investment to meet contingency needs.

But now to inculcate a sensible approach to invest in equities, the Association of Mutual Funds in India (AMFI) after the much success of the Mutual Funds Sahi Hai campaign (which drove in a lot of retail investors to mutual funds for wealth creation), has given a new spin with its “Rishte Nibhana Sahi Hai” campaign launched amid the festive season.

AMFI’s brand new campaign highlights the beauty of unspoken relationships. And to have a high recall value to its previous campaign, AMFI has retained ‘Sahi Hai’ this time too. Notably, AMFI has launched two new ads as a part of its investor awareness drive.

In one of the ad films, a taxi driver refuses to accept the meter fare from a couple at the end of their trip. His gesture of offering a free ride on the occasion of Navratri astonishes the couple.

In another ad film, a lady fulfils the desire of a few underprivileged children of eating a boxful of sweets on the occasion of Diwali. She appears touched by the joy she sees on their innocent faces.

You see, these ads under the “Rishte Nibhana Sahi Hai” campaign are symbolic but carry a very strong message.

In my view, both these ads suggest that the joy you get through selfless relationships is priceless. It’s about nurturing a valuable relationship with whoever it may be.

AMFI’s latest ad campaign also gives an indirect and a rather practical message that unless you secure your financial future, sometimes it becomes difficult even to fulfil the smallest of your desires and wishes. In financial parlance, we call it financial goal planning. Besides, the embedded message in these ads is about sharing the wealth you create with the people around you in your own small way.

For those of you who are new to investing, financial planning is a holistic exercise to evaluate your current and future financial standing. Based on which you can systematically construct a road map to achieve all the financial goals.

Mutual funds are a potent avenue for wealth creation and accomplishing your financial goals. But what you require to do is understand the schemes, evaluate them carefully, add schemes to the portfolio that are in congruence with your risk profile, and suitable to the goals you are addressing. Moreover, after you have invested periodically conduct a portfolio review as well as follow the necessary financial discipline.

Keep in mind the longer you stay invested in equity mutual fund schemes; the better is the chance you hold to compound your hard-earned money and accomplish the envisioned financial goals.

Remember, investing in equities is a marathon and not a sprint. So, do not focus on timing the market; instead, focus on the ‘time in the market’.

When you are addressing certain long-term financial goals, take the SIP route. SIPs will infuse the good habit of investing regularly (daily, monthly, or quarterly), systematically instil the investment discipline; and make timing the market irrelevant. It may also help mitigate volatility with the inherent rupee-cost averaging feature; will be light on your wallet, and serve to be an effective medium to compound money and achieve your envisioned financial goals.

If you buy right, hold tight, and ultimately your patience will be rewarded.

This article first appeared on PersonalFN here