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Many people have long-term and short-term financial goals. Hence, they look for investment options to achieve their goals. Mutual funds are one such investment option.
What is Mutual Funds?
A mutual fund is a scheme that collects money from many investors. This money is used to invest in various assets, like equities and debt funds.
Here Are Some Options In Equity Mutual Funds
- Large-cap, small-cap, and mid-cap funds
- Value funds
- Index funds
- Growth funds
Below Are A Few Options In Debt Mutual Funds
- Income funds
- Money market funds
- Ultra short-term funds
- Short-term and medium-term income funds
- Fixed Maturity Plans (FMPs)
Tips to Get High Returns in Mutual Funds
While mutual funds can offer good returns, you can maximise the gains by following a few tips-
Opt for High-Risk Options
Your risk appetite is a crucial factor that determines your returns. If you have a high-risk appetite, then you can grow your money by investing in high return mutual funds .For instance, equity funds are considered a high-risk option. However, they can also deliver exponential returns. Such investments can help you grow your corpus significantly in the long term. Thus, it’s recommended to research different equity funds, their market cap, etc. when making an investment.
Assess Your Financial Goal When Making Investments
Assessing your financial goal is important before making any investment. The mutual fund scheme you choose must suit your financial goal.Opting for a mutual fund simply because it has delivered great returns might be unwise. It might not offer the same returns in the future. Such a decision can lead to wealth erosion.For example, if you have a short-term financial goal, then investing in an equity mutual fund scheme might be wrong. As the price of equities tends to change frequently in the short term, you might lose your money.Thus, in such a case, debt mutual funds are a better option because they can provide stable returns compared to equity mutual funds. Mostly, equities are recommended for people with long-term financial goals.
Opt for Sector Funds that are Expected to Grow
Sector funds are one of the riskiest mutual fund options. However, investing in a sector fund that might outperform in the future can help you gain exponential returns.Furthermore, if you want to go for reliable sector funds, then you should consider the technology, healthcare, and finance sectors. These sectors tend to outperform in the long run.
Invest for long term
One of the most valuable and enduring pieces of advice you can receive is to invest for the long term. While many are aware of this, only a small number actually adhere to it. Mutual funds present an excellent option for those seeking long-term investments, particularly equity mutual funds. Though they may not meet your short-term expectations, they are sure to provide substantial returns over an extended period of time.
Invest in Index Funds
An index fund is a fund that tracks the returns of a market index. For instance, if you opt for the NIFTY 50 index fund, then your money will be invested in every company listed in the index.As these funds passively track the index, their costs are lower compared to actively managed funds. Hence, by investing in index funds, you can pay lower charges. This can lead to better returns.
Diversify Your Portfolio
While investing money is important, investing it in the right assets is also crucial. Investing in the right assets can help you diversify your portfolio. Diversification can enable you to mitigate risk.Thus, by investing in different assets, you can lower risk and gain higher returns. For example, you want to buy a house in 15 years. In order to achieve this goal, you’ll require a huge amount of funds.Equity mutual funds can help you achieve this goal. However, you also want to lower the risk of losing your money. Diversifying your portfolio can help you in this situation. You can invest 80% of your money in equity mutual funds to gain higher returns and lower the risk by investing the remaining 20% in debt mutual funds.
How to Calculate Mutual Fund Returns?
You must calculate the mutual fund returns before you make any investment. This will help you select the right mutual fund scheme for you.You can use a mutual fund calculator to calculate the returns. A mutual fund calculator is an online tool that provides the estimated result based on the details you enter. You can choose a mutual fund calculator based on the method of investment.
SIP Calculator
A Systematic Investment Plan (SIP) is a method of investing in mutual funds. In case of SIPs, you need to invest a fixed amount periodically during your investment tenure. You can use an SIP calculator to find out the estimated returns you’ll gain.In order to use this calculator, you need to enter a few details, like the monthly investment, duration of the investment, and the expected rate of return. Once you enter these details, the calculator will provide you with the result.
Lump Sum Calculator
Lump sum investment is another method to invest in mutual funds. In case of lump sum investment, you need to invest the entire amount in one instalment. To calculate the returns from a lump sum investment, you can use a lump sum calculator.You need to enter details, such as the investment amount, investment tenure, and the expected rate of return, to use this calculator. After that, the calculator will provide you with the result quickly.To achieve financial goals, it’s crucial to make the right investments. Mutual funds are a great option that can help you achieve your financial objectives. Furthermore, there are various mutual fund schemes . Hence, you must research them and select the one that meets your risk appetite and investment objective.
FAQS - FREQUENTLY ASKED QUESTIONS
What are the different types of mutual fund ?
Mutual funds can generally be divided into three main categories: equity, debt, and hybrid mutual funds. Equity mutual funds invest in the stock market, while debt mutual funds invest in government securities, and hybrid mutual funds invest in a mix of equity and fixed income securities.
In terms of return and risk profile, equity mutual funds typically have the highest potential for returns but also come with the highest risk. Hybrid mutual funds fall in the middle with a moderate level of risk and return, while debt mutual funds tend to have lower potential returns but also carry less risk compared to equity and hybrid funds. Investors should choose a mutual fund that aligns with their investment goals and risk tolerance.
Can we withdraw mutual fund return anytime ?
Yes, you can withdraw money from a mutual fund anytime you want, except on public holidays. However, you should note that you won't get the money from the mutual fund instantly. You might have to wait for 2-3 days to get the fund credited to your account. Additionally, there are some categories of mutual funds that have a lock-in period, such as ELSS (which has a 3-year lock-in period), which means you can't withdraw your funds before the lock-in period is over. Furthermore, there is an exit load in most mutual funds. If you exit a mutual fund before the specified period, you will have to pay the exit load.
What is the minimum period for mutual funds ?
You can invest in mutual funds for as low as overnight with an overnight mutual fund. For short-term investment purposes, you should choose debt mutual funds, and for long-term investment purposes, you should choose equity mutual funds. As mentioned earlier, some mutual funds may have a lock-in period, which makes the minimum time period for investment, and some mutual funds might have an exit load. So, if you exit the fund before a specified time period, an exit load will be charged.
What is the average return on a mutual fund ?
The average return on a mutual fund depends on various factors, such as the type of mutual fund, the time horizon, and the market conditions. It's difficult to accurately predict the returns, as the market is ever-changing. However, in the past, debt mutual funds have delivered returns of around 6-8%, while equity mutual funds have delivered returns of around 8-11%. It's important to note that these are long-term averages, and future returns may vary from these figures. Investing in mutual funds involves market risk, and it's important to have a well-diversified portfolio to minimise this risk. Moreover, investors should have a clear understanding of their investment objectives and risk tolerance before investing in mutual funds.
How to determine the fastest growing mutual fund ?
Analysing a mutual fund takes into consideration various factors, such as several years of data on the fund's past performance. While past performance is not necessarily an indication of future results, it can give an indication of the manager's capabilities in managing the fund. However, it's important to keep in mind that past year returns should not be the only factor considered. Instead, investors should also check the CAGR (Compounded Annual Growth Rate) returns of the previous 5 or 10 years, if available.
Additionally, investors should also consider the experience of the fund manager and the investment objectives of the fund. The fund manager's experience and track record can provide insight into their ability to manage the fund effectively, while the investment objectives of the fund should align with the investor's own investment goals and risk tolerance.
Other factors that investors may want to consider when analysing a mutual fund include the expense ratio, the fund's assets under management, the turnover rate, and the fund's holdings. Conducting thorough research and analysis of a mutual fund before investing can help investors make informed decisions and minimise the risk associated with investing in mutual funds.
Which is the safest mutual fund ?
Debt mutual funds are generally considered to be a safer option than equity mutual funds, as they invest in fixed-income securities such as bonds, treasury bills, and other debt instruments. However, it's important to note that there are different types of debt mutual funds, and their risk level can vary based on the underlying assets they invest in.
If you are confused about the different types of debt mutual funds, one option to consider is a gilt fund. Gilt funds invest in government securities, such as treasury bills and government bonds, which are considered to be among the safest investment options available. Gilt funds carry relatively low credit risk, as the government has the ability to repay its debts.
What is a good rate of return for a mutual fund ?
A return of above 10-12% in equity mutual funds and above 6-8% in debt mutual funds is generally considered a good rate of return. However, it's important to remember that investing always carries risks and there are no guarantees of future returns. Additionally, investors should consider fees, taxes, and inflation when evaluating their returns.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
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