It is well known that Mutual Funds offer investors multiple choices of schemes for short term, medium term and long term investment to meet the investment horizon and build diversification via liquid funds, debt funds, and equity funds. In addition, Mutual Funds offer liquidity, tax benefits, and varied formats of investments such as systematic investment, systematic transfers and even systematic withdrawal. Dividend income and Long term capital gains are tax free for the investor in Equity schemes. Most importantly, Mutual funds provide benefits of professional fund manager who is trained and experienced to generate returns superior to the benchmark.
Equity Mutual Funds attract most individual investors as the pool of individual investors money is invested in multiple securities providing benefit of diversification. The professional fund manager has the knowledge and expertise to deploy strategies, determine the allocation for investments in to sectors, specific securities and booking profits. The returns generated are a function of entry, longevity of investment and exit from the MF schemes. Analysing aggregated Mutual Fund data at CAMS points to strong correlation of longevity of investments and return maximization in equity funds.
What could the CAMS expertise tell you
CAMS identified five growth plans of equity category schemes comprising of two diversified equity schemes, two balanced funds and one ELSS fund which had the highest NAV. The current corpus of investment in the schemes was further classified based on ageing of investment e.g. less than one year, one to three years, three to five years, five to ten years, ten to fifteen years, greater than fifteen years and finally investment retained from the launch of the scheme. Comparing the cost value to current market value for each age intervals of the selected schemes resulted in remarkable discernment.
The above threw up interesting insights. For Scheme A, the original investment from launch of the scheme has multiplied 57 times. On an average, the investment held for fifteen to twenty years multiplied 24 times, ten to fifteen years multiplied 15 times, five to ten years multiplied 5 times, three to five years multiplied 3 times, one to three years multiplied 2 times and investment during last one year generated 1.x times return. This illustration clearly establishes that longer the duration of investment, higher is the factor of multiplication.
Age wise multiplier effect is shown as how investment has multiplied over duration of holding
Time does matter
In stock market parlance “multi bagger” is a term used for identifying stocks which multiply in their market price. All the five schemes in this analysis were multi baggers multiplying the original investment by 39 times in ELSS scheme, 34 and 55 times in the two balanced schemes and 45 and 57 times in the two diversified equity schemes.
It may be impractical to expect a typical investor to stay invested forever in the scheme to multiply his investment. Therefore CAGR growth was computed and this illustrates that investment held for more than 10 years in well performing equity schemes generated investment return ranging 15 to 20 percentages. These are extraordinary compared to any other investment options available for the investor.
In MF, Keepers are Winners!
The wealth created by these schemes is certainly eye popping, particularly by the investors who stayed invested since launch. The investing public must collectively celebrate the skills and efforts of these fund managers through the market cycles. An analysis was further carried out to identify the nature of investors and their average investment to get insights of investors who really benefitted from the best performing scheme.
Diversified equity schemes in this study had Rs. 2.47crores of original investment which has multiplied to Rs.113.4 Crores. About 5000 investors held these investments with an average investment of Rs. 4,700 rupees only while current value of average investment is Rupees 2.16 Lakhs.
Balanced schemes in this study had Rs.1.34 Crores of original investment which has multiplied to Rs.69.9 Crores. About 3000 investors held these investments with an average investment of Rs. 4,436 rupees only while current value of average investment is Rs. 2.31 Lakhs.
ELSS scheme in this study had Rs.0.29 Crores of original investment which has multiplied to Rs.11.1 Crores. About 600 investors held these investments with an average investment of Rs. 4,876 rupees only while current value of average investment is Rs. 1.89 Lakhs.
The data shows that very small number of retail investors stayed invested since inception and gained from long term investment. Staying invested has helped these investors weather the equity market volatility and bull / bear runs.
A prospective individual investor can take a leaf out of the wealth created by these investment champions and look forward to gaining from long term investment in equity mutual funds. May many more such investment champions flourish creating wealth for themselves but also providing much needed growth capital for the country.
- As authored by Mr. N.K.Prasad, President & CEO, CAMS ( Computer Age Management Services Pvt. Ltd)
Note: Data, analytics and interpretation used in this article is based on insights provided by the CAMS Analytics team.
Computer Age Management Services (CAMS) is India’s premier Mutual Fund Transfer Agency serving over 60% of assets of the industry across 15 Mutual Funds. Leveraging superior technology, CAMS brings several innovative services to Mutual Fund investors and distributors. CAMS is also a service partner to leading insurance companies, banks, NBFC’s and alternate investment funds. To know more visit www.camsonline.com