Mutual Fund Returns: Key Points You Must Know

Mutual funds are also called the baskets of investment. These investment options aid numerous investors who are unwilling to devote time to keeping track of the stock market’s volatility and price index. Instead, those investors wish to take advantage of the proficiency of the fund managers who will research for them to make them earn the rolling returns of mutual funds.

Predominantly, factors considered by an investor before choosing a liquid fund return or SIP returns scheme include risk tolerance, investment horizon, and return expectation. However, fund selection is based on other factors such as stock’s past performance, expense ratio, assets under management, and fund management experience. 

Extensive research of mutual fund returns and a clear picture of these parameters will help investors decide where they must invest. They will also realise what type of funds are ideal for them–small-cap, mid-cap, large-cap, or multi-cap funds. 

Can You Yield Exceptionally High Mutual Funds Returns?

One of the most common questions we have found across the web is about people searching to make mindful decisions about their mutual funds’ returns. We have done proper research to clarify the topic and help them earn maximum mutual funds returns. 

The first question is whether it is possible to yield extraordinary returns while investing your money in mutual fund schemes? The answer is yes; you may get decent returns that are enough to resist inflation. 

Although, mutual funds do not offer assured returns as they are entirely dependent on the stock market’s performance and key factors governing the market. However, based on long-term historical average returns, you can expect a return of 12% to 18% per annum. 

Suppose you are thinking of investing and fetching high liquid funds returns or SIP returns, remember. There is no guarantee of any returns or principal amount in these funds, just like mutual funds. However, there are minimal chances of losing your money if you want to pour your investment and extract from debt funds returns. 

At the same time, the return on the debt funds schemes is extremely low, which may not be enough to survive in this extravagant world. Hence, many investors have opted for mutual fund returns of 10, 15, or maybe 5 years, depending upon how long they are willing to stay invested. 

Did You Know?

It is a myth that people state that mutual funds are for experts and only for the long term. Some investors have seen their portfolio’s value grow while investing their money in liquid funds, in which investors park their money for a short span. 

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Key Takeaways

• Many mutual funds involve different risk levels. So, investors must choose the mutual fund that suits their investment “riskometer”, return expectancy, and investment period.

• Asset allocation is imperative. Therefore, never keep your all eggs in one basket is always said. Hence, being an investor, you must diversify your investments into different asset classes and funds to reduce your portfolio risk. 

• Mutual fund returns, especially opting for SIPs (automated investing), help you reap decent returns even when the market is highly volatile. 
• When the market is going down, you are still purchasing the units at a lower price, bringing down the average cost of the fund’s price. 

• This process, known as Rupee Cost Averaging, facilitates yielding decent returns in the long run. 

How to Choose the Best Mutual Fund?

Here are many critical factors based on which you must opt for a mutual fund and pour your hard-earned money into these schemes. These factors are – 

1. Determine the Investment Goals

Before investing in a mutual fund, identify your investment goals and how much you expect to yield returns from a specific investment plan. You must ask yourself whether your investment objective is for long term capital gains or short term. The former comprises saving for retirement, wedding, children’s education, etc. The latter means short duration, for instance, if you need your money a few weeks or months later to meet your expenses, medical treatments, etc. 

2. Risk Tolerance

Analysing the risk associated with the investment is imperative before opting for a mutual fund scheme. An investor can either choose debt mutual funds or equity mutual funds. Suppose they are willing to take high risks. In that case, they can invest their money into equity funds, suitable for aggressive long term investors. Debt mutual funds are for those looking to fetch stable minimal returns and who do not want to take risks. 

3. Liquidity

Investors must know the investment horizon and when will they require their investment in future. An investor must choose the mutual fund and generate expected returns. 

4. Fund Performance

A mutual fund delivering 10% returns every year is better than the one yielding 18% in 1st year and -10% another year. Remember that mutual funds delivering consistent returns are more acceptable. 

5. Direct Plans give higher returns

The expense ratio of direct plans is less than the regular plans so direct plans can yield impeccable returns for investors.

6. Taxes

As an investor, one must know whether the returns are taxable as per the income tax act or not while making money from your investment. The returns are taxable when equity fund units are redeemed per the holding period. 

If you invest in short term capital gains, they are taxed at 15%. In comparison, long term capital gains are taxed at 10%, above the exemption limit of 1 lakh. 

Types of Mutual Funds

Predominantly, there are 2 types of mutual funds in India. A mutual fund can be based on open-ended or closed-ended schemes. 

1. Open-ended schemes– These funds allow the investors to enter and exit anytime, as these funds do not have a fixed maturity date. 

2. Closed-Ended schemes- These mutual funds have a fixed maturity date. Investors can only invest in these mutual fund schemes during the initial period, known as NFO (New Fund Offer). 

Pros and Cons of Mutual Funds

Pros

• Expert management of fund manager
• Highly accessible as mutual funds are extremely easy to buy
• High liquidity ratio
• Diversification of your funds makes the risk minimal.

Cons

• High expense ratios and sales charges.
• Tax inefficiency
• Sometimes, inefficient fund managers can make poor trade execution.

Did you Know?

The minimum SIP amount can be as low as Rs. 100 for each month. Hence, numerous people pour their money into mutual funds and gain stock market knowledge. They can do this by knowing the price volatility index and experiencing the market fluctuations (seeing the upside and downside of the market). 

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Word to Remember

NAV

All mutual funds are purchased and sold based on their Net Asset Value (NAV), which is the unit price of the mutual fund plan. 

Now that you are fully informed about choosing a mutual fund, you can stop relying on the stock market brokers or agents for their advice. Additionally, there are many platforms, such as Adlift, that guide you through the entire process of making effective investment decisions. 

The best part about the online platforms is getting the information without paying a single penny. You do not pay anything to get valuable information that empowers your mutual funds’ investments’ journey. 

Are you still thinking about whether you should opt for mutual funds to yield higher returns? Or go for debt mutual funds returns to keep your principal amount safer while earning nominal return annually? Whatever you choose, always remember that the decision is entirely yours. At the same time, always ensure you consider all these factors if you wish to generate higher mutual funds returns, reduce risk, and grow your portfolio’s net worth.

Happy investing!

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