The growth in new investor accounts is more encouraging. From 5.82 crore unique accounts in June 2017, the count has improved to 7.46 crore in June 2018—a growth of 28.2%.

Investors are going gung-ho on equity mutual funds in particular.

[Read: Does AUM Size Affect Mutual Fund Performance? Here’s What You Must Know…]   

As revealed by CAMS, India’s premier mutual fund transfer agency, new SIP (Systematic Investment Plan) registrations increased nearly 92% in FY 2017-18 as compared to that in FY 2016-17.

Over the last couple of financial years, the average SIP contribution has grown from Rs 3,546 per account to Rs 3,850.

These factors suggest that, while mutual funds are getting popular, mutual fund investors are getting wiser too by investing regularly in a systematic manner.

But, the success of the mutual fund industry can be immediately called into question looking at holding trends. And that’s precisely what some news reporting agencies are doing.

As reported by Mint dated August 23, 2018 (based on AMFI disclosures) suggests that 51% equity mutual fund investors pull back their investments within a year.

If this is true, isn’t it paradoxical that the mutual fund industry has been growing at a healthy pace? Then, what’s the basis for the much hyped growth of the industry?

If a majority of the investors opt out of equity mutual funds within a year, there’s a possibility that they are ill-informed and misguided by mutual fund distributors.

As per the AMFI data disclosed on June 30, 2018, only 28.8% of the equity assets stayed invested for more than two years. And, little over 10% of equity assets have a holding period of less than a month.

Data as of June 30, 2018
(Source: www.amfiindia.com)

A reference to “holding period” is made not to “redemptions”.

A key finding one can’t miss…

There were 5.06 crore unique investor accounts in September 2016 and 7.46 crore unique investor accounts in June 2018. 

In other words, nearly 47% of existing investors will naturally have a holding period of fewer than two years because they are yet to cross that milestone.

Some technical points

• The term “equity assets” makes no difference between fresh inflows and capital appreciation achieved on old investments, at least going by the AMFI data.

• Are mutual fund scheme mergers to do anything with the average holding period? Technically, when a scheme gets merged with another, investors are considered to have exited from the merged schemes and are allotted units in the surviving one.

Therefore, for all reasons described above, it would be wrong to conclude that equity mutual fund investors redeem their units soon after investing.

We can only hope that AMFI may clarify what it means by “28.8% of the industry’s assets stay invested for more than 2 years.” Until then, the jury will be out on the redemption trends of the equity oriented schemes.

Some of you might question the brouhaha around the redemption traits and holding period preferences of equity mutual fund investors.

There’s a reason…

Equity mutual funds are suitable only for the long-term; to plan financial goals such as buying a dream home, children’s education needs, their wedding expenses, your retirement corpus; among a host of others where the investment time horizon is five years or more. For goal planning, SIPs are an appropriate route as you can benefit from rupee-cost averaging and compound your wealth systematically.

If the investment time horizon is six months and you are considering equity-oriented mutual funds, it’s imprudent thinking as you might lose money due to market volatility.

[Read: 10 Mistakes To Avoid While Investing In Mutual Funds]

Before you invest in equity mutual funds, consider the following:

1. Your age

2. Your financial health

3. Your investment objectives

4. Your financial goals

5. The time horizon before the financial goals befall

6. Chart out a personalised asset allocation chart and align your mutual fund investments accordingly

7. Performance track record across timeframes and market phases to invest in mutual fund schemes which have a proven and consistent track record and compensates you adequately against the risk you are exposed to

When you select mutual fund schemes for your portfolio, the evaluation should be done on a host of quantitative and qualitative parameters.

[Read: Why Selection Is Crucial To Make Solid Gains With Mutual Funds]

[Read: 5 Bad Ways to Pick Mutual Funds – And One Good Way]

Watch this video:

Once you select a mutual fund scheme wisely, it will  not be necessary to exit it abruptly.

Happy Investing!

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