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Stock Analysis, IPO, Mutual Funds, Bonds & More

How much returns can one expect from equity mutual funds?

If you have any mutual fund queries, message on ET Mutual Funds on Facebook. We will get it answered by our panel of experts.

ET Online|
Nov 15, 2019, 11.53 AM IST
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What if someone invests Rs 1 lakh as a lumpsum in five types of mutual funds like large cap, mid cap, small cap, multi cap, and tax savings fund for 7-10 years. How much returns can be expected?
-Nitin Solanki

First, an investor should choose mutual funds based on his or her financial goals, time in hand to achieve those goals, and risk profile. Adding every mutual fund category is not going to offer the benefits of diversification. Diversification happens when you choose mutual funds based on the following parameters. For example, take the example of a conservative equity investor investing for seven to 10 years. The person should invest mostly in large cap mutual funds. What if the person has a moderate risk profile? She should invest mostly in multi cap schemes. If she wants to reduce the risk further, she can add large cap mutual funds to her portfolio.

Second, it is always better to stagger your investments in equity mutual funds. This is just to make sure that you don’t catch the market at a certain level. Sure, if you catch the market at the bottom, it would be great. But since we don’t know what is the bottom for the market, we avoid that by averaging.

Three, mutual funds do not guarantee any returns. You can assume an average return of 10-12 per cent returns from equity mutual funds over a long period. Note, this is a conservative assumption and it is based on historical returns. The actual returns may depend on the performance of the stock market in the period of investment.
(If you have any mutual fund queries, message us on ET Mutual Funds on Facebook. We will get it answered by our panel of experts.)

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