WHY INVESTING REGULARLY AND STAYING INVESTED MATTERS

 In a country where economic growth and corporate profits are growing steadily, you need to align your long-term investments to benefit from that growth. A regular, systematic investment plan in a diversified equity mutual fund over 20 years can easily take care of your retirement. The catch is that you cannot touch this money and withdraw just because you can.

Atul Bhole is a renowned fund manager at Kotak Mutual Fund. He revealed a fascinating insight into the journey of a 20-year-old mutual fund scheme he managed. He talked about it in a podcast on YouTube. The scheme generated a compounded annual growth rate (CAGR) of 18%. The most important thing he said was that only 23 investors stayed invested for that period. Everybody else came and went. The average return for investors who did not stay invested for 20 years was only 7.5%. The story pretty much narrates the importance of investing regularly and staying invested. It also explains the cost of being fickle when investing. The difference is significant when you look at the span of the investment.

A Rs 5,000 per month investment in the equity fund over 20 years would have created a pool of nearly Rs 1 crore at 18% CAGR. The 23 investors managed to create that wealth for themselves. If they had been smart enough, they would have used the step-up option, which allows you to add more money to the existing systematic investment plans.

Your retirement should not be considered a burden for your 40s and 50s. A simple path shown by the diversified equity fund would help you achieve your financial goals without hurting your finances. You could create a moat if you contribute small amounts in your 20s and increase them in your 30s, 40s and 50s. In old times, forts used to be protected by a water body around to stop the enemy from easily entering it. Your savings could have created that moat for you in your 40s if you started in your 20s and 50s if you started in your 30s.

The emergence of the National Pension System (NPS) is an opportunity for those who are conservative and unhappy to take risks by investing through mutual funds. A defined contribution scheme allows you to benefit from market-linked returns with a maximum equity allocation of up to 75%. In such a situation, you could have made a 13-14% return annually since the inception in 2009 if you stayed invested, according to the NPS Trust data. Salaried individuals contribute money to their retirement and then can buy an annuity to pay themselves a pension. There is a facility for employers to pay for their employee’s retirement too. In an employee provident fund, the government guarantees a return of 7-8%. In an NPS, there is no such guarantee. You benefit from the upside in the market if you allocate more to equity assets.  

The other option is to invest through a passive fund like an exchange-traded fund. These are usually based on indices like Nifty and Sensex and offer returns in line with their performance. According to the latest mutual fund data, there is a significant surge in investments through ETFs in India. However, it is just about 22% of the total assets under management of mutual funds. In the US, passive funds manage nearly 60% of the total assets.

In any form, mutual funds must be your vehicle for retirement planning. If you take any lesson from the conversation on staying invested above, you will realise your dreams early. You can start in your 20s and retire in your 40s to pursue your passions. It is a skill to master to invest regularly and stay invested.

2025-05-19T02:46:48Z