Aug 18, 2017 4 min read

Know the Power of Holding Period in Mutual Fund Investments

Does holding period affect the risks and returns on my investment? Know here.
Mutual funds invest in the various stocks and bonds of different entities and thus involve a certain amount of risk along with their high profit-generating capacity. There are a variety of investment plans which vary in their risk and return capability, and the investors select the plan which fits them the best as per their financial target considering the risk-taking ability.

It is one of the most important factors which affects the selection of mutual fund investments by an Indian investor. There is a healthy number of investors who do not want to make risky investments but wish to fetch millions in return. Is it really possible? Let’s read further and know how one can reduce the risk from equity investments.

Holding Period Have the Power to Make Your Risk Much Smaller

Exactly, you must have a big question in mind about the authenticity of the above statement. Usually, we hear that higher the risk, higher will be the returns on investment. But, it is not possible for most of us to invest in the high-risk funds to fetch the maximum yields, because we all have different risk appetites and risk-tolerance levels. Here are the major four types of investors who have distinct investment nature:

  • Ultra-Conservative Investors : They need maximum safety irrespective of the returns.
  • Conservative Investors : They tolerate little risk to get some extra benefits on their investment.
  • Moderate Investors : They target to get more returns by taking some additional risk.
  • Aggressive Investors : They are ready to take the substantial risk to get maximum returns on their investments.

The four types of investors listed above have different risk-taking abilities. Conservative and ultra-conservative are those investors who do not experience the amazing ride of the equities due to the involvement of high risk. They never want to put their funds in risky projects and invest hardly up to 7% of their capital in stocks. But, what will be your reaction if we say that an ultra-conservative investor can get exposure of up to 71.3% in equities?

Isn’t it wondering? No matter if you are an ultra-conservative investor, you still can invest 71.3% of your investment into equities to fetch more returns just by stretching the investment horizon to 30 years. Yes, all you need is to extend the holding period which will ultimately result in balancing the risk against profits. The extended level of holding period allows you to expose more of your capital to stocks which are specifically known for their nature of providing fantastic returns in the long run.

Furthermore, the conservative investors are the ones who hardly invest their capital in stocks and always want to be on the safer side by playing on the debt instruments. They stay unaware of the real benefits of equity investments which one can enjoy in the long-term period. And, many of them wish to enter into equity, but they fail due to their conservative nature. According to our study, a conservative investor, who hardly has the capacity of investing 15% in the equities can make 89.7% of his/her total capital into various stocks if he/she stays invested for a period of more than 30 years. So, the one who has low-risk appetite can also invest a significant part of the capital into equities and earn tremendous wealth simply by extending the holding period.

By stretching the holding period of the mutual fund investments, one can make more profits and reduce the risk. In the long term, stocks are the best investment instruments one can find, and they also offer the power of compounding which in long-term period helps to overcome the risk associated and earn riches manifolds.

Here are some of the tips which can help you stick to your investment for a longer period:

  • Early Start : If you are a youngster and haven’t started your investment journey yet, there can’t be the best thing than to grab an unbelievable opportunity of earning wealth. You are in the best time to step into the investment world and have the most valuable thing needed to make money manifold, i.e., ‘Time’. So, start as early as possible to get the long-term hold on your investments.
  • Managing Expenses and Budgeting : It is often seen that most of the investors step out from their investments just because they fall short of finance to tackle any uncertain requirement. If you are managing your current expenses well and making proper budgets for your future needs, then there will be fewer chance to fall in those situations, and you will be able to stick to your investments for a long period to fetch the maximum benefits.
  • Avoid Frequent Switches : Do not commit the mistake of changing the plan just because of some fall in the particular market or scheme. The withdrawal of a scheme leads to the loss of its power of compounding it earns till date. So, try to stay invested for a longer period in equity funds as they have proven to provide big returns in the long term.

So, dream big and achieve big, the best way to make corpus is to stay invested for a long-term period. MySIPonline has various mutual fund schemes to invest online; you must grab the best one for you right away.