Mutual Funds: Investing discipline requires being invested for a long time. When an investor stays invested for a long time, they stand to reap the fruits of compounding. In other words, being invested for a long period allows them to earn disproportionately higher returns in the later years than in the first few years.
This happens because the returns in the first few years are added to the corpus, thus incrementally raising the scope of earning higher returns.
To illustrate this point, we randomly handpick one mutual fund (JM Flexicap Mutual Fund), which has delivered a healthy return (of 14.25%) since its launch in 2008. For the uninitiated, a flexi-cap mutual fund is free to invest in the securities across market capitalisation (large cap, mid cap and small cap) in any ratio as it deems fit.
(Source: Jmfinancialmf.com)
As the table above shows, if someone had invested ₹1 lakh at the time of the scheme’s launch (23 September 2008), it would have grown to ₹9.87 lakh, thus delivering an annualised return of 14.25%.
The same investment of ₹1 lakh would have grown to ₹4.79 lakh if the tenor were 10 years. It would have grown to ₹2.70 lakh in five years and ₹1.73 lakh in three years.
More about JM Flexicap Fund
The fund’s assets under management (AUM) are allocated across equity (98.4%) and debt (1.6%). The assets are invested across market capitalisation with 54.34% in large-cap, 23.78% in mid-cap and 20.28% in small-cap stocks.
The top five holdings are Reliance Industries, L&T, SBI, Bharti Airtel and ICICI Bank. Sector-wise, the asset allocation of this mutual fund is as follows: financial services (32.61%), information technology (10.10%), healthcare (7.98%), capital goods (6.42%), consumer services (6.29%) and other sectors (36.60%).
The fund managers of this scheme are Satish Ramanathan, Asit Bhandarkar, Deepak Gupta, and Ruchi Fozdar.
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