Holding period for positive return from Indian mutual funds

Rajamohan Ramaiah Ramasamy,Sathish Pachiyappan

doi:10.21511/imfi.16(1).2019.27

Abstract

In India, households predominantly prefer to invest their surplus in financial securities, which provide stable return irrespective of whether they beat inflation or help in creating wealth. However, financial planners advise their clients to invest their surplus for long term in risky assets such as mutual funds to generate inflation beating returns. But when households ask for the meaning of long term in a definite number, it varies among the financial advisors. Hence, the study made an attempt to answer this question by calculating the minimum time duration required to generate a minimum positive return for two indices (NIFTY 50, S&amp;amp;P BSE SENSEX) and 6 mutual fund schemes for a period of 23 years and the same two indices (NIFTY 50, S&amp;amp;P BSE SENSEX) and 20 mutual fund schemes for a period of 12 years and found out that the time horizon or the long term to ensure minimum positive return ranges from 5 years to 9 years depending up on the type of fund or the level of risk associated with the mutual fund schemes.

Highlights

In India, the households’ surplus are predominantly parked towards fixed income generating investment options such as banks fixed deposits, post office saving schemes, life insurance policies and provident funds
If we look into the returns from the stock market represented by the indices S&P BSE SENSEX and NIFTY 50 and select mutual funds, they range between –36% and 81%
If they have invested in risky assets in the stock market through the market indices or in mutual fund schemes, they could have generated better returns over the years

Summary

INTRODUCTION

In India, the households’ surplus are predominantly parked towards fixed income generating investment options such as banks fixed deposits, post office saving schemes, life insurance policies and provident funds. The present study made an attempt to analyze the returns of the market indices and few mutual fund schemes to identify the holding period (long term) for positive return and the zero probability for negative return to enable the investors to confidently park their surplus in risky asset such as mutual funds. He et al (2015) studied the performance of Chinese Using Treynor and Mazuy model, Kumar and mutual funds and found that only 7.5% of the Katyal (2017) evaluated the market timing abilifunds generated significant positive alpha and less ties of top 15 Indian equity diversified funds and than 5% of the funds showed market timing ability found that major part of the mutual fund manor stock selection skill They found that older agers are not timing the market for the benefit of funds had higher Sharpe ratios and a positive cor- the investors. Ally even if the investor has made his investment at the worst time indicating how long the inves-

METHODOLOGY

DISCUSSION

Findings

CONCLUSION