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Does Buy & Hold Work? The Answer May Shock You...

Should you build your investment portfolio using a buy & hold strategy? Does it really work? Is it a myth? Here I'll show you a real life example of passive investing...
Does Buy & Hold Work? The Answer May Shock You...

I recently started using an Indian FinTech startup company called Groww to search for some good recommendations - how I came across is it was when they started publishing content around mutual funds (kudos to the guys).

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Well, as I was playing with it the other day, and I found an interesting feature.

You can track your external investments in Mutual Funds, thanks to their ability to read the CAMS reports (Provided by CAMS Online - a share transfer registry).

They've made it really easy with an API integration with your Gmail. But I would rather not give them access to read my emails, luckily they had another option - forward the generated CAMS report to their email, and they'll extract the details.

So I gave it a go. It did take a bit of time to get the report from CAMS, but that was CAMS delay, not Growws. And I was pleasantly surprised because there was a mutual fund - SBI Infrastructure Fund - that I remember investing in a long while back, on the recommendation of a relative who worked with the State Bank of India. I can't recall if he would get any commission for recommending this fund, or whether he had some targets to achieve but I thought I'd risk something. You never know, it might help us both.

That was 2007, way before the Modi Government, and I probably believe it was selling the infrastructure story of India. Well, what better time than now, when the market has crashed to see how a long term - BUY & HOLD strategy really works.

Right, so you would think that during this period the results were positive, after all that has been a lucky 13 years. And you'd be right, they were positive. I got...

₹ 6,398 over 13 years for the ₹ 1 lakh investment.

Yes, that's 6.40% over the 13 years. Or roughly 0.50% per year on my investment. I had to check how much the expense ratio was for that mutual fund, and low and behold - it was 2.58%!! (WTF, I thought it would be 1%...)

So basically, the FUND MANAGER has earned 33.54% and I've earned 6.40% on my investment over 13 years. How cool is that! Even if that was 1%, that would be 13%, more than double what I earned! This is an example of how the mutual fund industry is ripping you @#4%^& off.

How Mutual Funds Can Rip Your A$$ Off!

I have to keep in mind that the bulk of the loss took place in the last 3-6 month period, i.e.30%.

So what would you do, would you buy and hold forever or would you just get out and put your money to better use?

P.S. I haven't really done the maths on a fixed deposit during this period, but I assume it will be more than 40%. Also, this is not an SIP, it was a lump sum investment - but this is to show you that Mutual Funds are not the best investment vehicle given their expense ratios. What's the solution? Signup below to find out...

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29 August 2020 Update: I've gone ahead and redeemed the fund, we managed to book 50% return on investment (ROI). But from an IRR point of view, that's 3% per year - could have just invested in a fixed deposit!

Check out one of the Mutual Fund investments, that I believe will do well.

Motilal Oswal S&P 500 Index Fund - Should You Invest?
If you’re probably wondering why I left this post to the last minute, it’sbecause to make a decision you only need 2 minutes! Once done, it’s done - thenyou course correct. > Should you invest? If you have the cash, yes. Read on to learn why I feel thismight be a good investment, but not as an N…