What are the expected or calculated returns on mutual fund investments in India?

 

A typical search history for a young professional living in Bangalore, who has just started receiving steady salary might look like: 

"Highly-rated restaurants in Bangalore" "Popular travel destinations in India" "Top-performing mutual funds in India"  

While it's tempting to spend all your salary on the luxuries you’ve been dreaming of, your financial responsibilities and monthly expenses should take precedence. However, this does not mean that all your dreams have to fade away entirely. To make sure you fulfil all your dreil all your dreams and obligations, start saving and invest in mutual fund online in India in order to achieve good returns.  

Let's begin by answering the question, "What is a mutual fund?" Before we proceed, let's quickly review the basics. Mutual funds are investment schemes managed professionally by asset management companies (AMC) to meet the needs of individual investors. The AMC pools funds from multiple investors and invests them in equity shares, bonds, money market instruments, and other types of securities. In return, investors receive a specific number of units in proportion to their investment in the fund, making them unit holders. Based on their investment in the fund, each unit holder shares the gains, losses, income, and expenses of the fund.  

Is a mutual fund the safest investment? No investment is completely risk-free, including mutual funds. While other investment options like stock markets and real estate are more complex and riskier, mutual funds offer a relatively safer choice. Additionally, mutual funds are subject to strict regulations by SEBI, reducing the likelihood of scams or misuse of funds.  

Furthermore, many mutual funds are geared towards achieving long-term goals, so short-term market fluctuations need not be a cause for concern. It is advisable to select a mutual fund that aligns with your goals and has a long-term investment horizon. Most importantly, conducting thorough research on the funds before investing is crucial.  

Why should you think about investing in mutual funds?   

1. Ease of investing and monitoring: Investing in mutual funds has become effortless with the advent of the Internet. Mutual funds can be purchased, managed, and sold online. Monthly statements and performance reports are readily available, allowing you to track the progress of your funds and assess whether they are aligned with your financial goals.  
2. Professional management: A fund manager, supported by a team of professionals, thoroughly analyzes companies and sectors before making SIP investment decisions. The resources and expertise are tailored to the type of fund, with index funds requiring less monitoring and fewer resources compared to equity funds, for example.  
3. Cost-effectiveness: Mutual funds have a large number of investors, resulting in lower asset management costs compared to individual investments. By sharing costs among investors, mutual funds become an attractive investment option.  
4. Short lock-in period: Unlike traditional investments such as PPFs and fixed deposits, which often have long lock-in periods, mutual funds generally have shorter lock-in periods. Tax-saving mutual funds like ELSS typically have a three-year lock-in period, shorter than instruments like ULIPs. Industry experts suggest aligning your investment in mutual funds with your short-term or long-term objectives. However, longer-term investments generally yield better returns. Redeeming your investment in mutual funds based on your needs is convenient.  
5. Portfolio diversification: Investing in mutual funds allows for the diversification of your investment. By averaging the performance of multiple stocks within the mutual fund, you can spread your investment risk and potentially increase your returns. For example, if your mutual fund has exposure to stocks, gold, and treasury bills, any decline in stock value can be balanced by gains in gold and treasury bills.  
6. Liquidity and tax benefits: There are various ways to save taxes using mutual funds, although it is important to understand the details before investing. Lock-in periods are typically not required for most mutual funds, except for ELSS or tax-saving funds. In most mutual funds, you can withdraw your investment according to your needs and requirements, and you can invest in mutual funds as necessary to align with your investment objectives. Liquid Funds (a type of debt fund) offer a high level of liquidity, allowing you to withdraw your funds within a single day. ELSS mutual fund also provide tax benefits of up to₹ 1,50,000 in a financial year under section 80C of the Income Tax Act 1961. However, these funds require a three-year lock-in period for investors.  
7. Goal-oriented investing: Different types of mutual funds are categorized based on their financial goals. Investors can choose a mutual fund that aligns with their preferences. Growth funds aim to provide high returns for investors with a long-term investment horizon, while income funds cater to those seeking stable income.  
8. High potential for returns: Seeking high returns is a common objective for investors, and mutual funds are market-linked instruments that have often surpassed market expectations. Equity mutual funds have outperformed bank deposits very often over the past decade. Investing in equity stocks through mutual funds is relatively safer since it allows for risk diversification and the potential for healthy returns.  
9. Transparency and regulation: Mutual fund houses are regulated by the Securities Exchange Board of India (SEBI). They are required to make necessary disclosures, including daily updates of the mutual fund's Net Asset Value (NAV) available online. The risk level of the fund must also be disclosed. This transparency makes it easier for investors to track the progress and performance of the mutual fund.  

Do returns depend on the proportion of investment?   

Each investor receives profits or losses based on their invested portion. Fund managers utilize the invested amount to invest in various assets and generate returns in line with the investment objective. Ultimately, the main purpose of investing is to achieve returns and additional income.  

It is up to you to decide between short-term and long-term investments. To maximize returns on your invested amount, you can consider investing in the top-rated mutual funds in India or explore the five best-performing mutual funds. However, not all mutual fund types offer the same quality of results. For instance, debt funds operate differently and provide distinct benefits in terms of regular income and potential profits from government securities. In short, investors can expect profits based on ongoing interest rate movements.  

How can we calculate the return on mutual fund investments?   

While new schemes are frequently introduced to maximize profits, we can estimate the actual investment return by focusing on selective mutual fund categories. If you're uncertain about the exact calculation for your investment purposes, you can utilize online calculators available on the Internet. These calculators provide an idea of the expected returns based on inputs such as the type of fund, investment amount, interest rate, and whether it's an SIP or lump sum. You can access the Fi Mutual Fund calculator for further clarity.  

Let's take a look at how to use the mutual fund calculator. Before you invest, it's important to understand the returns on your mutual funds. A mutual fund calculator is a practical financial tool that allows investors to calculate the returns obtained from investing in mutual funds.  

Operating the mutual fund calculator is simple, and it provides a clear estimation of the value you will receive based on your investment goal, amount, and time period. Since you already have an idea of how much you want to invest, the calculators can help you determine the approximate future value of your investment.  

Depending on the nature of your intended investment, you can choose between two types:  

1. Lump-sum investment: A one-time investment aimed at maximizing potential outcomes.  
2. SIP investment: Investing smaller amounts at regular intervals, such as monthly, quarterly, or half-yearly.  

How to use the mutual fund calculator for lump-sum investments:  

1. Enter the investment amount: The total sum you plan to invest in one go.  
2. Select the expected rate of return: An estimated growth rate based on historical data or market predictions.  
3. Choose the investment duration: The period you plan to remain invested.  

The calculator will then provide an approximate future value of your invested amount at the end of the selected duration, taking into account the expected rate of return.  

How to use the mutual fund calculator for SIP investments:  

• Enter the monthly investment amount: The amount you plan to invest regularly at fixed intervals.  
• Select the expected rate of return: An estimated growth rate based on historical data or market predictions. 
• Choose the investment duration: The period you plan to remain invested.  

The calculator will provide an approximate future value of your invested amount by the end of the selected duration, considering the expected rate of return and the regular investment amount.  

Please note that the calculated values are approximate and subject to market conditions. It's a constant recommendation to consult with a financial advisor or use official platforms to get accurate information and insights before making any investment decisions.  

Remember to invest wisely and select the right mutual funds to invest in that align well with your risk tolerance and investment goals.  

Disclaimer: Mutual Fund investments are subject to market risks. Please read all scheme-related documents carefully before investing.