scorecardresearchMutual funds: Why is it vital to stay invested?

Mutual funds: Why is it vital to stay invested?

Updated: 29 Jul 2022, 08:04 AM IST
TL;DR.
Most investors focus on where to invest rather than for how long to continue investing. Factoring in investment tenure is important when deciding financial goals as market investments show palpable returns only after a particular period. 
Investment tenure matters if your financial goals are tied up with mutual fund investments

Investment tenure matters if your financial goals are tied up with mutual fund investments

The time spent in the market is the key to earning higher returns. This age-old adage holds more relevance in today’s times when investors are rushing to withdraw their investments post a prolonged and continued downturn in the stock markets. This is especially true of new investors who have recently entered the market and may be witnessing the first bearish phase in their investment. The current market scenario will remind you of the constant upheavals synonymous with market behaviour.

However, irrespective of the market tumults, staying invested for at least a decade or so will fetch you the much-desired results. However, for this, you must know how much you are looking to save and accumulate in the long run. 

Once you have determined the corpus and the period within which you want this amount, you must decide how much to invest and in which fund you must park your money for better returns. Also, a lot depends on the market capitalization of the companies in which you want to put your money, which means that you may put your money in large-cap, mid-cap and small-cap funds. 

Alternatively, you may invest in dividend yield funds to benefit from the dividend returns on these funds. Sectoral or thematic funds are inherently riskier in nature, though you cannot deny the high yields you can earn from them. Some prefer to park their money in value funds that invest in value-driven stocks as compared to most other funds putting their money into growth-oriented stocks.

For example, you are looking to accumulate 1 crore in another 20 years. Unbridled investments for 20 years necessitate grit and patience though you cannot deny the returns that the market yields over the period.

Let us say that you have opted for the Canara Robeco Bluechip Equity Fund which has earned an average of 14.35 per cent returns over five years. Investing 10,000 every month non-stop for the next 20 years can fetch you the desired returns. This you can calculate for other funds too after comparing their returns and expense ratio and then deciding accordingly.

 Name of the large-cap fund Fixed SIP (in Rs) Returns rate (in %) Investment tenure (in years)

Maturity amount (in Rs

 Canara Robeco Bluechip Equity Fund  10,000 14.35 20 1,38,26,916
 Edelweiss Large Cap Fund 10,000 12.36 20 1.04,92,677
 Kotak Bluechip Fund 10,000 12.29 20 1.03,93,041

Examples like these help you decide which fund you must include in your investment portfolio. Some people have a higher risk-taking ability and invest in small-cap funds that yield higher returns, thus, enabling you to not only create a corpus but also leave behind a legacy for your dependents.

 Name of the small-cap fund Fixed SIP (in Rs) Returns rate (in %) Investment tenure (in years) Maturity amount (in Rs)
 Axis Small Cap Fund 10,000 19.71 20 3.02,59,316
 Kotak Small Cap Fund 10,000 17.80 20 2,27,52,175
 Nippon India Small Cap Fund 10,000 17.78 20 2,26,85,098

It goes without saying that all mutual funds go through alternative phases of highs and lows as they behave in sync with the stock markets. Staying invested for a long period lends you the dual benefits of compounding and reduced volatility.

This is because investing for a longer period means increased chances of returns accumulation over the period. Also, volatility is spread over a considerable period, thus, entailing the benefits of reduced volatility.

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First Published: 29 Jul 2022, 08:04 AM IST