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Why invest for the long term?

Investing can be considered as an easy task for anyone but generating the desired returns on your investments is not that simple. It depends on a host of factors that include your risk-taking ability, the asset classes you chose, investment horizon andexpected returns. While the portfolio that you construct and the holding period of your investments is largely tethered to your financial goals, when it comes to investing in equities, it is always wiser to invest for the long-term i.e. for a period of at least 5 years. Holding equity investments for the longer term can offer investors myriad benefits. Below, we discuss two primary ones.

Mitigate Market related risk

Market volatility plagues every kind of investor and nearly every kind of investment strategy. In the short-term, equity markets can be fairly volatile as stocks respond to market noise and are influenced by skittish investor behaviour. The sharp movements in stock prices can increase portfolio volatility and the overall portfolio risk. This is the reason why most investors shy away from equities. However, it is important to understand that while stock prices might respond to short-term noise, over the long-term, the true fundamental value of a stock is expected to emerge. Once a stock’s true fundamental value is realised, it is expected to generate stable returns. Additionally, by holding an equity investment for the long-term, you are able to average out the daily ups and downs that stock prices are prone to witness. In the long-term, price volatility is likely to get normalized, thus mitigating volatility risk. A long-term investment strategy for equities can reduce portfolio volatility and concurrently enhance risk adjusted returns.

Power of compounding

When you choose to invest for the long-term, you give your investments an opportunity to reap the benefit of compounding. The compounding process ensures that both the capital and interest earned from an investment, earns interest, as time passes. The magic of compounding is best enjoyed by an investor who stays invested for long. It's not just the principal amount but also the cumulative interest that earns more interest for you.

The tables below illustrate how small amounts of investments made at regular intervals can grow into a large corpus due to the power of compounding.

The results offered in the above table, based on assumed rate of return(s), are meant for illustration purpose only and to explain the power of compounding. The calculations are not based on any judgements of the future return of the debt and equity markets/sectors or of any individual security and should not be construed as promise on minimum returns and/or safeguard of capital by BNP Paribas Mutual Fund (the Fund)/BNP Paribas Asset Management India Private Limited (AMC). The Fund / AMC is not guaranteeing or promise on of forecasting any returns. SIP does not any assure a profi_t or guarantee protection against loss in a declining market. Entry/Exit load is not taken into consideration in the above illustration(s).

Investing for the long-term can help equity investors mitigate their portfolio risk while at the same time enables them to enhance their equity returns through compounding. Both of these factors make a compelling reason to stay invested in equities for the long-term.

It is mandatory for all mutual fund investors to undergo a one-time KYC (Know Your Customer) process. For more info on KYC specifically on: the procedure for completing KYC, for changing address details, for changing contact details.
For changing bank details, visit bnpparibasmf.in/investor-centre/information-on-kyc
For more info on submitting a complaint or a grievance, visit https://www.bnpparibasmf.in/contact-us
Further, investors should ensure that they transact ONLY with SEBI Registered Mutual Funds listed under Intermediaries/Market Infrastructure Institutions on the SEBI website https://www.sebi.gov.in/intermediaries.html

An Investor Awareness Initiative.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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