Spectacular Return of Reliance Growth Fund
A few days back I have got one mail from Etica Wealth Management Pvt Ltd about one of reliance mutual fund scheme. I am share that same mail with all of you for your knowledge point of view.
Did you know that Rs 1,00,000 invested in Oct 1995 in Reliance Growth Fund has grown to Rs 50,11,800 in Dec 2012. This works out to a whopping 50 times growth in 17 years i.e an annualized return of 25.61% p.a. Doesn't it sound incredible? Which other investment avenue has given such fabulous return consistently over such a long period and that too completely tax-free. Investors generally talk about Real Estate and Gold as the best form of investment but if you look at the past data, equity as an asset class has outperformed both these popular form of investments quite comfortably. Few days back, we saw an article in ET of a flat being sold in Samudra Mahal (one of Mumbai's most iconic residential apartment in Worli at a price of around Rs 1,10,000 per sq ft which sounded almost unbelievable. But if you dig little deeper, you would know that this only works out to a return of around 12-13% p.a over the last 30 years. On the other hand, the BSE Sensex has given an average return of 17% p.a in the similar period which goes completely unnoticed.
But the sad part is, though the fund has generated such meteoric returns, investor never makes such kind of money. Peter Lynch, one of the greatest fund managers of all-time has once said "My fund has made money, but my investors hasn't". He was referring to the performance of Fidelity Magellan fund which has generated a return of 22% p.a since 1963 till the time he was the fund manager, while the investors have hardly made any returns depending on when they entered and exited. Can't believe it? The reason is simple. When the investor makes quick returns in the fund, he withdraws the money too soon thinking that he will put it back when the market comes down which somehow never happens. While in Real Estate / Gold, people just buy and forget it and naturally in the long term, the asset value grows. Whereas, the moment an investor buys a stock or invest in a mutual fund, he will start tracking the value from the next second even though he promises to be a long term investor. And this is the reason, he exits too early. This is called the "ticker effect" i.e he continuously starts tracking the price on CNBC (the moving line which displays stock prices). But in Real Estate because there are no minute by minute price updates, he has no choice but to hold it.
Finally, it is easy to create wealth in the long term, provided we have the patience. Just like Rome was not built in a day, wealth creation will not happen overnight. Stay through the course and you will also be proud of your financial life some day.
But the sad part is, though the fund has generated such meteoric returns, investor never makes such kind of money. Peter Lynch, one of the greatest fund managers of all-time has once said "My fund has made money, but my investors hasn't". He was referring to the performance of Fidelity Magellan fund which has generated a return of 22% p.a since 1963 till the time he was the fund manager, while the investors have hardly made any returns depending on when they entered and exited. Can't believe it? The reason is simple. When the investor makes quick returns in the fund, he withdraws the money too soon thinking that he will put it back when the market comes down which somehow never happens. While in Real Estate / Gold, people just buy and forget it and naturally in the long term, the asset value grows. Whereas, the moment an investor buys a stock or invest in a mutual fund, he will start tracking the value from the next second even though he promises to be a long term investor. And this is the reason, he exits too early. This is called the "ticker effect" i.e he continuously starts tracking the price on CNBC (the moving line which displays stock prices). But in Real Estate because there are no minute by minute price updates, he has no choice but to hold it.
Finally, it is easy to create wealth in the long term, provided we have the patience. Just like Rome was not built in a day, wealth creation will not happen overnight. Stay through the course and you will also be proud of your financial life some day.
Regards,
Arvind Trivedi
Certified Financial Planner
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