Will lost mode take effect even when the phone is reset?
Lost mode does not remove either activation lock (good for you, bad for resale or thieves) nor wi-fi saved credentials or cellular data.

The finder can ensure the device never connects to a network but they also can't use it under those circumstances for anything but trying to brute force the passcode and read the data offline.

If they reset the device / iTunes will report that it's activation locked and until they connect to WiFi or get you to release it from your iCloud - they can't activate that device without Apple's help. The reset will wipe saved WiFi but not cellular data. If you discontinue service, you'll drastically reduce recovery location chances. But that costs $$ and the tradeoff is about a month or two for me currently.

You should keep it on your iCloud forever if you wish to keep it locked to your account.

Sorry for the loss - you are in the ideal situation to get it back and haven't sabotaged any of your options with lost mode.