Is buy and hold strategy still working effectively for unit trust funds? There have always been arguments that buy and hold is not a strategy. Rather it is the same as not doing anything. Your investment may sink, and this makes the situation worse.
 
For example, you bought an equity fund in December 1998 and kept it till December 2004. They provided you with a return on investment (ROI) of 2%. In other case, if you would have actively managed your investments and opted for a bond fund and returned to equity later, the ROI would have been 15%. Therefore, a buying, monitoring and rebalancing strategy is always suggested by some analysts.

Buy and hold strategy is made by assuming that markets will eventually go up in long run.  It is a strategy that will always help the investors in saving their transaction costs, taxes on capital gains and thus avoid the hassles of buying and re-selling.

A number of factors are concerned to this strategy. At the very first point, it is assumed that the hold or buy portfolio is diversified into different stocks and asset classes. If an investor invests only in one stock, than he will not be able to recover the cost instantly. He will be required to invest in other asset classes like bonds, gold, cash etc. The portfolio will definitely give good results in long term, but you can’t expect best results many times.

Secondly, it is essential for an investment to be fundamentally sound. A buy and hold strategy need not produce best results in developing countries, but many changes are taking place. Thus, a country’s development surely affects its business cycle, economic and investing environment and government policies. Investors should also be aware of the fact that they can not ignore the impact when such changed happen.

In these cases, investors are advised to review their investments at least once in a year. The question now comes is, should the unit trust investors try timing the investment market? A unit trust fund is an investment vehicle for medium to long term. But you can not just invest and forget about it for the specified time period. It is important for investors to monitor their unit trust fund closely and control their hard earned money by not easily giving up.

In most of the cases, it has been found that all investors are not literate enough to know when to enter and exit their asset classes. The moment their emotions come into play, it becomes difficult for them to sell and take profit or cut losses. This have more affect on investors who directly invest their money in market. Therefore, if you are clueless and lack in knowledge about financial markets, it is always safe to leave the task to the professionals.

While going for a unit trust investing, you should always make it a point that you are comfortable with fund manager’s style. If the investor rebalances his portfolio himself, then he is the one who takes all the asset allocation decisions. When the market moves a step ahead, it’s the investor who decided what to buy, hold or sell.

Those who prefer to control investment themselves should make sure that you settle for a fund that charges minimal entry and exit fees or if it allows you to freely switch between funds in the same company in that particular financial year. Move your investments only when think that market fundamentals have changed.

It is always good to review your portfolio at least once in a year even if the investing environment does not show any significant changes. This is because the investment period might have changed your own investment objectives.

For those investors who prefer their fund manager to decide every step as long as they are getting reasonable investments, there are different funds allowing you to just sit back and receive increasing ROI. Always prefer to work with the funds and fund managers whose style of investment matched your risk profile.

It is essential for an investor to be literate even If he has hired a fund manager. This helps him in understanding the worst cases of investment that might be beneficial for him in long run.