We often come across conversations or articles where we hear about multibagger returns from the stocks and shares. But we hardly hear about multibagger Mutual Funds. Have you ever wondered why?
The other day, I was reading a nice piece of information shared by Aarti Krishnan in Value Research Magazine October 2017 edition. She gave nice insights on this particular topic. Let me give you a brief here.
Equity investors in the stock market, who prefer to invest in companies stocks, earn multi-fold returns compared to the ones who invest in Mutual Funds. Their profession may not allow them to spend time in researching individual stocks. Hence, they prefer to give a part of commissions to the fund managers and earn money through his research and investing skills. Do you believe that Fund Managers of renowned Mutual Funds are not that averse to picking multibagger stocks? Obviously, they are but they need to keep the fund performance in the account as well.
When does a stock become multibagger?
In order to achieve multibagger returns from a stock, one needs to hold it for a long long period of time. That too with patience and total conviction that this is the best bet. Years of sitting on your couch and holding it will give you stellar returns. Thus, you can say that the holding period is huge.
Ever heard about Symphony Coolers? It gave stellar returns only after years of holding it for a huge duration of time. It’s stock of Rs.0.43 in 2005 became a multibagger in year 2015 with an all time high of Rs. 1635. Those who had the patience of holding it till the end earned a lot of money from just single stock.
It also takes other factors into account such as its Profitability Growth, Revenue Growth, Return on Capital Employed etc. A business takes time to achieve a multibagger growth. And likewise, the stock price moves along with the performance of the company.
Can Fund Managers hold the stock for a long period of time?
On the other hand, Fund Managers find it difficult to hold a stock for a long duration of time. They are accountable to the investors for the inferior fund performance. Just imagine, had he held Symphony Coolers for 7-10 years, would his fund returns have beaten the benchmark? The answer is no. They can’t hold on to stocks for years just like that. They need to provide the fund performance report card every year.
Investors in Mutual Funds love to watch their money grow from time to time. They just can’t sit idle and wait for years for a stock to perform.
Thus, you’ll never get to hear about a multibagger Mutual Fund.
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