Do you know a Mutual Fund which is almost 80 years old? You may get surprised. But there is an equity mutual fund on this earth which is almost 80 Yrs old Mutual Fund. What can we learn from this fund?
Many of use listen to the advice from GENUINE Financial Planners or Advisers that you must stay invested for long term. However, the definition of the long-term varies from person to person. For few enthusiastic investors, the long term may be 2-3 yrs. For few, it may be 10 Yrs and for few, it may be 20-30 yrs.
Hence, we assume the meaning of LONG TERM as per our comfort and start investing. But I found many that they neither do asset allocation (may be many times because of not knowing the meaning of it) or stay invested for long term.
In my view, if you are equity investors, then I classify the time horizon as below.
0-5 Yrs-Short Term
6-10 Yrs-Medium Term
More than 10 Yrs Long Term.
I never suggest you invest in equity if your goal is short term. Be calm with your investment within the available debt assets like FDs, RDs or Debt Funds.
If your time horizon is medium term, then never go beyond 40% into equity. Rest 60% should be in debt.
For long term goals also, the asset allocation between equity and debt should be 70:30. Don’t overboard beyond this into equity.
Now coming back to our topic of this post.
Why always is it beneficial of staying invested for the long term in equity mutual funds? It is not because of equity mutual funds but also in any asset class it is important to understand the power of compounding. The more you stay invested the more benefit you will get through the power of compounding.
How to become Crorepati easily??
Yes, EASILY you can become Crorepati. You no need to work hard. Here are some number and products using them you can easily become a crorepati.
Notice the difference between years of becoming Crorepati by keeping money in the savings account to investing in debt products. It is almost 49 years early by merely investing more than 3% return. Same way if we consider equity investment, then the difference is almost 3 times lesser.
By showing above numbers, I am not saying you that you take a risk and invest all your investable surplus in equity asset class. But here my point is that, debt products alone not sufficient to create wealth.
Therefore, by investing in any asset class you can become a crorepati. But what matters is WHEN.
What can we learn from 80 Yrs old Mutual Fund?
Investment is lazy exercise. Means you no need to act on news based or event based actions for investing. Every now and then we hear in media or from financial experts that we must either BUY or SELL. They never suggest you to hold if forever.
Because the experts who appear in media are almost brokers or sellers. They never feel happy with your laziness. They need some action of either BUY or SELL. If you buy or sell then they earn otherwise NO.
However, wealth can be created by investing for LONG TERM. The proof is the USA’s 80 Yrs old Mutual Fund. You may surprise with listing to this that how this 80 Yrs old Mutual Fund survived for so long. But if you check their strategy then you also feel of zealous.
The Fund Name-Voya Corporate Leaders Trust
Now let us see the fund performance since it’s inception.
You notice that since inception I mean since 1935 to date, the fund has generated 10.12% returns. It may not be a great number to those who running behind star ratings or chasing fund returns.
However, this 10% to 12% are great numbers who are investing for their long-term goals.
Few facts about Voya Corp Leaders Trust Fund
# It is almost 82 Yrs old Fund.
# The fund is holding the same stocks which it started in the year of 1935. It invested in 30 leading US companies equally in 1935.
# It invested in 30 leading US companies equally in 1935. After that, it has not made any changes to portfolio except for automatic corporate actions like a merger, spinoffs, bankruptcy etc. So it sells stocks when company go bankrupt or if the dividend is suspended.
# Currently the fund is holding 22 companies.
# If you invested Rs.10,000 as lump sum investment in this fund in 1935, then that will be now worth of Rs.2.71 Cr. (It is USA Fund but for simplification, I assumed rupee as an investment value).
# The fund has outperformed the market in 40 years without adding or deleting the new stocks.
# The fund buys same company stocks when an investor invests and sell same stock when investor request for withdrawal. But portfolio remained same forever.
# Few stocks which the fund holding since 82 years are DuPont, General Electric, Procter & Gamble, and Union Pacific.
# It also has positions that came through mergers and/or spinoffs. For example, it owns Berkshire Hathaway via an original position in the Atchison Topeka and Santa Fe Railway. It has CBS via a stake in Westinghouse Electric. It owns Honeywell through a stake in Allied Chemical.
# It is a low-cost fund with expense as 0.52%. Its expenses are less. Because of no frequent trading. Holding the same set of stocks for long.
# The formula fund following as per the product brochure is “The founders of the Trust bought equal shares of 30 leading companies in 1935 and decreed they could never be sold. The only exception was companies that went bankrupt, merged or spun off”.
These are the few facts which I learned about funds. This is just a SLAP to all those who churn their portfolio frequently. This is the SLAP to all those who feel EQUITY is not a worthy investment.
This is all about the story of USA based 80 Yrs old Mutual Fund. How can we assume the same with Indian market? Because there are few sets of experts who believe that we must not follow what it happened in the USA. For those, here are few funds which were started in 90’s era and their performance are as below.
1) HDFC Top 200 Fund
Returns of 3 Yrs-16.43%
Returns of 5 Yrs-15.24%
Returns of 10 Yrs-14.44%
2) Franklin India Bluechip Fund
Returns of 3 Yrs-16.11%
Returns of 5 Yrs-14.27%
Returns of 10 Yrs-12.82%
3) SBI Magnum Equity Fund
Returns of 3 Yrs-16.72%
Returns of 5 Yrs-15.33%
Returns of 10 Yrs-12.51%
4) UTI Equity Fund
Returns of 3 Yrs-16.84%
Returns of 5 Yrs-16.45%
Returns of 10 Yrs-14.19%
5) Reliance Growth Fund
Returns of 3 Yrs-23.54%
Returns of 5 Yrs-17.73%
Returns of 10 Yrs-14.09%
6) Franklin India Prima Fund
Returns of 3 Yrs-29.47%
Returns of 5 Yrs-26.20%
Returns of 10 Yrs-16.44%
These are the few among many funds which are since 90’s era and still giving us decent around 10% to 12% returns. There is no specific attachment to these Indian funds. However, I randomly selected.
Notice one thing, all funds 10 yrs returns are over and above 12%. I just IGNORED the star ratings of these funds. I am not saying that these are the BEST funds. However, my point here is investing for the long term without bothering about ups and down of market is actually what the secret of wealth creation.
Few posts related to Mutual Funds which I wrote in 2017 are as below.