How many years is best to invest in mutual funds?
Based on our analysis, we found long-term is at least 7 years. Investors who held their investments for this duration never incurred losses. There is no specific time horizon to stay invested in mutual funds. This decision totally depends on various factors such as your financial goal and performance of funds.
Mutual funds have sales charges, and that can take a big bite out of your return in the short run. To mitigate the impact of these charges, an investment horizon of at least five years is ideal.
Compared with flexi-cap, funds in large-cap category such as Franklin India Bluechip and HDFC Top 100 Fund have given the return of 21 times and 29 times over the period of 20 years. Investing in mutual funds is usually considered a wealth-building strategy.
Mutual funds are generally regarded as a secure investment since they have minimal fees, adequate liquidity, the flexibility to diversify among numerous securities and other things like debt, gold, etc., and start with any amount as low as ₹500 per month.
So, yes, debt mutual funds can be a better investment option for goals that are 3 years away. Investing in the best debt funds for 3 years can be an excellent option for investors looking for steady returns without taking too much risk.
Fund | AUM (In Crs) | 5 Yr Return (%) |
---|---|---|
HDFC Balanced Advantage Fund Direct Plan Growth Option | ₹73349 Cr | 20.95 % |
Edelweiss Aggressive Hybrid Direct Plan Growth Option | ₹1170 Cr | 19.17 % |
UTI Aggressive Hybrid Fund-Growth - Direct | ₹5215 Cr | 17.16 % |
One of the strategies for compounding money through mutual funds is to use the 8-4-3 rule, where the compounding effect grows exponentially. In the initial 8 years, the compounding effect shows good results, but its speed increases in the next 4 years and super-exponentially in the following 3 years.
Long-term investment in mutual fund
A long-term investment can help tackle market volatility and create wealth for various long-term goals. Long term investment in mutual fund allows you to reinvest your earnings, dividends, or interest back into the investment, and increase the potential for growth exponentially.
Mutual fund investments when used right can lead to good returns, keeping risk at a minimum, especially when compared with individual stocks or bonds. These are especially great for people who are not experts in stock market dynamics as these are run by experienced fund managers.
A monthly investment of Rs 5,000 for 10 years at an expected rate of return of 12 per cent will earn you Rs 11.61 lakh. The gains made by you in this scenario will be approximately Rs 5.61 lakh (Rs 11.61 lakh minus 5000*10*12).
Am I too old to invest in mutual funds?
No matter your age, there is never a wrong time to start investing. Let's take a look at three hypothetical examples below.
Mutual Fund calculation: Several equity mutual fund schemes have given compounded annualised returns of 20% or more in the last 20 years. According to FundsIndia's latest Wealth Conversation Report, as many as 7 equity mutual fund schemes have given 18% to 23% returns in 20 years (see chart below).
Mutual funds come with many advantages, such as advanced portfolio management, dividend reinvestment, risk reduction, convenience, and fair pricing. Disadvantages include high fees, tax inefficiency, poor trade execution, and the potential for management abuses.
Fund Name | Category | Risk |
---|---|---|
Mirae Asset Overnight Fund | Debt | Low |
Axis Overnight Fund | Debt | Low |
Kotak Equity Arbitrage Fund | Hybrid | Low |
Tata Arbitrage Fund | Hybrid | Low |
(You must convert the rate of return to the monthly figure through dividing by 12). You also have n = 10 years or 120 months. FV = Rs 1,84,170. So, the future value of a SIP investment of Rs 1,000 per month for 10 years at an estimated rate of return of 8% is Rs 1,84,170.
Lack of Control. Because mutual funds do all the picking and investing work, they may be inappropriate for investors who want to have complete control over their portfolios and be able to rebalance their holdings on a regular basis.
Mutual fund schemes in categories such as multi cap, flexi cap, value and ELSS gave high returns in the range of 30-40 percent per annum. If you are a mutual fund investor then this calendar year must have turned out good — if not phenomenal — for you in terms of the returns these schemes have delivered.
I've been investing in mutual funds for more than 3 years now. My average returns from all the funds are close to 30%.
Fund Name | 5 Years Return | 10 Years Return |
---|---|---|
Parag Parikh Flexi Cap fund (G) | 23.3% | 20.5% |
ICICI Prudential Infrastructure Fund (G) | 27.6% | 20.5% |
ICICI Prudential Value Discovery Fund (G) | 22.7% | 20.5% |
Tata Infrastructure Fund (G) | 25.2% | 20.4% |
If you were to stay invested for a shorter duration, say 20 years, you'd invest Rs 2,40,000, but your portfolio value would be Rs 9.89 lakh. A decade-long investment of Rs 1,000 per month would equal Rs. 2,30,038, as compared to Rs. 1,20,000 invested over the same period.
What is the highest rated mutual fund?
Ticker | Name | 5-year return (%) |
---|---|---|
PBFDX | Payson Total Return | 16.30% |
SSAQX | State Street US Core Equity Fund | 16.20% |
CORRX | Columbia Contrarian Core Adv | 15.89% |
FGRTX | Fidelity Mega Cap Stock | 15.73% |
In investing, the 80-20 rule generally holds that 20% of the holdings in a portfolio are responsible for 80% of the portfolio's growth. On the flip side, 20% of a portfolio's holdings could be responsible for 80% of its losses.
15 X 15 X 30 rule of mutual funds
If u do a 15,000 Rs. SIP per month for 30 years (instead of 15 years as earlier), at a 15% compounded annual return, You will be able to accumulate 10 CRORE against 1 crore if u invest for 15 years), said Balwant Jain.
One simple rule of thumb I tend to adopt is going by the 4-3-2-1 ratios to budgeting. This ratio allocates 40% of your income towards expenses, 30% towards housing, 20% towards savings and investments and 10% towards insurance.
The chances of a mutual fund becoming zero are very low. This is because a mutual fund invests in several assets. So, even if a few assets do not perform well, other assets can generate returns. This can balance the losses of non-performing assets.
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