Is Advice Nudging Long-Term SIPs?

A higher percentage of direct investors in mutual funds tend to withdraw funds earlier than the regular investors, who usually buy funds on the advice of financial advisors or distributors

- JOYDEEP SEN

You would have heard about certain aspects of the mutual fund industry, such as the growth in assets under management (AUM) or how mutual funds are competing with bank deposits. But there would be certain trends which you may not be so aware of. We dissect these trends in the mutual funds industry, to assess whether there are any learnings or takeaways.

Holding Period

You would have heard so many times that investment is a long-term game, and it is boring in the sense that it does not give the thrill of, say, day trading or betting apps. When we look at investors' average holding period, it is not encouraging. Data on investors' holding period is available in three time horizon buckets: less than one year, one to five years, and more than five years.

As of March 2019, taking industry-wise data, in direct investments, 60 per cent of investments were held for less than one year, 39 per cent for one to five years, and only a minuscule portion was held for more than five years. Things improved thereafter.

As on March 2024, 41 per cent of investments were held for less than one year, 51.30 per cent for one to five years and 7.70 per cent for more than five years. The encouraging part is the longer holding period of one to five years and more than five years has a higher proportion now. However, the fact that 41 per cent of direct investments are still held for less than one year, is a cause for concern. Part of it is explained by liquid and/or money market fund investments. That apart, in equity funds, this is opportunistic and looks like trading calls.