Average Indian Investor and Long Term Investing....

The moto of investing is to make profits. More the profit - more is your happiness. But to make more profits - you need to take a bit of risk. Without taking risk but want maximum profit happens only in dreams. And when the going is good - many investors 'assume' or take it for granted that the dream run would continue and start investing in high risk investments. The carrot here is the immediate past returns. But when tide turns for whatever reason it is - they panic by stopping SIP's, making redemptions and questioning the 'safety' factors - which they should have considered before investing.

A recent survey by the watchdog SEBI says 79.7% of indian investors are risk averse or conservative. And only 5.6% have the risk tolerance to invest in risk assets like (direct) equities. But when the going is good, many assume they have high risk appetite - only to realize their limits when they hit speed breaker. No wonder the % allocation of overall asset in equity related investments is close to just 3%. Logically having invested only 3% of your networth in equities - you should not be worrying too much about the volatility. But when panic grips - people run helter-skelter.

 

It is a well known secret that investments compound over years. The longer - the better. An investment at 8% grows 10x in 30 years, but close to 86x at 16% in same time frame. While the returns are not guranteed - long term investing does help you investments grow better. And the beauty is the real differentiation or impact is only felt after 10 years. And to see the benefits you need to stay invested.

But sadly, 50% of mutual fund investments are redeemed in Year - ONE itself. And only 3% of the MF investments are held beyond 5 years. When you could not hold even for 5 years - where does an investment duration of 10 years or 30 years come?

 

SIP's (Systematic Investment Plans) are THE BEST way to discipline you as an investor. You keep investing some money every month - through the ups and downs. And without your knowledge or awareness - you keep investing across market cycles benefiting out of the long term growth. But even here, many SIP investors stop their SIP's for various reasons. And only one in 10 SIP's remain active beyond five years. To be honest - you need to give some time for the trees to grow and show up some results.

Without these understanding - you cannot become a long term investor. It is better late... than never!!!