What can three decades of equity fund investing do to your savings? Something amazing, it turns out.
11-Aug-2022 •Dhirendra Kumar
A couple of weeks back, HDFC Mutual Fund's Chief Investment Officer, Prashant Jain, quit his job after 19 years at the company. Jain has been one of India's most celebrated fund managers over the decades, even though he went through a lean period in the last few years. Jain's reputation as an exceptional fund manager arises from his track record of being able to build long-term returns by making good gains in good times and then protecting them well in bad times. That's a bit of an oversimplification of a three-decade career but is broadly indicative of why this man became the star fund manager that he was.
However, Jain's track record is not the subject of this page today. Instead, it's the rather interesting public reaction to media articles that referred to his funds' returns over long periods of time. The very idea that mutual fund returns, sustained over decades, can have a transformational impact on an ordinary middle-class person's prosperity is understood by relatively few savers. To show what is possible, I did a sort of a modelling exercise, a simulation of what a lifetime of modest but sustained savings could do, if done through an unbroken SIP in a decent fund.
Since the topic at hand is HDFC and Prashant Jain's funds, and I needed a fund with a very long track record, I chose a hybrid fund that Jain managed since February 1994. Over these 28+ years, this fund has been available to the public first as Zurich India Prudence Fund, then as HDFC Prudence Fund, and eventually, as a merged entity with HDFC Balanced Advantage Fund. This last change resulted from a reorganisation resulting from SEBI's new fund categorisation scheme in 2018. This merger is not material to our exercise since the fund stayed suitable for the same kind of investing need.
Let's say someone started investing Rs 1,000 a month in this fund in February 1994. Rs 1,000 was a good-sized investment in those days, and a middle-class salary-earner would have to be at least somewhat focussed on savings to save that much. Let us further assume that our saver would be able to increase this amount by 8 per cent every year. Through the dotcom crash of 2000 as well as the global financial crisis of 2008-09, our saver persists without getting nervous. Or maybe he gets nervous but hangs in there since Jain's funds lost less than their peers during these phases.
Either way, this marathon SIP continues for 28 years, till August 2022. That's unrealistically long but since this is just a simulation to show the impact, please bear with me. By the end, because of the annual hike of 8 per cent, the monthly investment has gone up to Rs 8,627 a year, still a very modest sum. And yet, the total investment has grown to Rs 1.43 crore over the years. The rate of return for the entire SIP is 18.3 percent per annum. Depositing a smallish sum every month - something that won't be seriously felt - and having it grow to something that can make a difference to someone's life is exactly what a long-term investment in an equity or an equity hybrid fund can do.
The point of this story is not that one has to sustain anything for 28 years but that any part of this experience makes a mutual fund investor a believer in the how saving money and investing it correctly can make a hugely meaningful difference to one's life. The key is to sustain it and not get distracted by whatever is creating investment hype at the moment. The other side of the coin is being too conservative and staying put in a bank deposit or something like that for years and years and losing out on the opportunity. Once the years slip by, they don't come back. To be a long-term winner, one has to start early.
Suggested read: Start now for a lifetime of wealth