Mutual Funds: A Pathway to Long-Term Success or Quick Returns?
When it comes to investing in mutual funds, many individuals find themselves in a state of uncertainty. The question often revolves around the timeline for achieving significant returns. Conventional wisdom suggests that mutual funds can yield impressive results over a 20-30 year period. However, can the same be said for a 2-3 year timeframe?
The Reality of Short-Term and Long-Term Investments
While stock mutual funds and stocks in general offer excellent long-term results, they are inherently volatile in the short term. A stock investment held for two to three years might experience significant value appreciation, a slight increase, or even a decrease in value. Over the long term, a 20-30 year investment period is almost certain to yield substantial gains, as there has not been a period of that duration in the U.S. without significant market gains.
It is important to note that any financial advisor or investment advisor promising gains over a two to three-year period is most likely lying or operating under fraudulent means. Long-term, consistent growth through prudently managed mutual funds is the safe and proven approach.
Client Success Stories
Many of our 1000 clients have demonstrated the effectiveness of long-term investing with our guidance. For example, one client, who initially invested Rs 15 lakhs and added Rs 35 lakhs, has enjoyed a total investment of Rs 50 lakhs. This client now enjoys a monthly withdrawal of Rs 40,000, along with a capital appreciation of Rs 22 lakhs and a monthly withdrawal of Rs 7 lakhs over the past three years.
My Personal Journey with Mutual Funds
My personal journey with mutual funds began in December 2021, and I started investing through Systematic Investment Plans (SIPs) every month. Initially, I deposited a little over 10% of my monthly salary into mutual funds, given it was a new venture for me. However, as I gained confidence, I gradually increased my investment to nearly 30% of my monthly salary.
By the end of November 2024, this amounts to three years of investment. Although three years is a relatively short period to assess mutual fund returns, it has provided me with a fair idea of whether my funds are performing better than the market or underperforming. I have made necessary adjustments by stopping a couple of SIPs and adding a few new ones to diversify my portfolio.
Over these three years, I have achieved a gain of 43% on my investment, with an XIRR slightly above 27%. While this XIRR is impressive, it is important to note that the market experienced a bull run, a severe dip at the start of 2022, and a market correction in October and November 2024. Despite these challenges, my mutual fund investments are expected to form part of my post-retirement corpus, which is a long way to achieve!
Conclusion
The journey of investing in mutual funds is rewarding, especially when approached with a long-term perspective. While shorter-term gains are possible, they are unpredictable and can be volatile. Long-term investing, guided by sound financial advice, is the key to building a robust and secure financial future.