Will these mutual funds give me 15% annual returns?

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

iStock
ET Spotlight
I am 26 years old. I have started investing Rs 25,000 in equity mutual funds. I plan to increase this by 10% every year. My ultimate goal is long-term wealth creation and to be financially independent by the time I turn 46 years old. Currently, I have invested in the following funds:

Axis Long Term Equity Fund: Rs 4,000
Mirae Tax Saver Fund: Rs 4,000
Parag Parikh Tax Saver Fund: Rs 2,000
Parag Parikh Long Term Equity Fund: Rs 5,000
Axis Midcap Fund: Rs 5,000
SBI Small Cap Fund: Rs 2,500
Axis Small Cap Fund: Rs Rs 2,500

Is this a good fund selection? Can I expect a CAGR of around 14-15 % in the given time-frame? I also wish to include a debt component of around 10% by reducing that from equity, but do not understand debt instruments well and I am quite fearful after Franklin Templeton saga.
-Saumil Shah

Puneet Oberoi, Certified Financial Planner & Director, Excellent Investment Advisors:

Firstly, the percentage of returns from your mutual funds depends on when you sell your investments. For example, the same funds might give you 20 % returns in next 5 years but in 15 years it might average out to 12% , because when you need it markets might be down. Also, it depends on the performance of your schemes year after year. In my 20 years of experience, I have not seen a single fund which remains the best. For example, HDFC Top 100 Fund was among the top for five for almost 10 years, but it does not figure anywhere in past five years.
Axis Midcap Fund-Growth ★★★★★
  • 13.5%Annualized Return for 3 year
  • >3 years Suggested Investment Horizon
  • 3.5 YearsTime taken to double money
  • 11.39%Annualized Return for 3 year
  • >3 years Suggested Investment Horizon
  • 3.5 YearsTime taken to double money
So, its very important to monitor your portfolio on yearly basis and change when schemes are constantly underperforming the benchmark for at least 2 years .


As far as Debt is concerned , believe me , one should not worry at all. I will explain debt in layman's language: Just think that you have Rs 1 crore in your bank and you want to get good interest. What you do is offering it to people who want it and ready to pay interest for it. What will you do, you will check the credibility of each person and charge accordingly. Let us say you gave Rs 2 lakh each to 25 different people, maximum people at 9% , some at 12% and two people at 18%.

Mutual funds do the same. Take the money from you and lends it to different companies. They check the credibility of companies through credit ratings under AAA ,AA , A+ , A , B , B- Categories. When you are lending to companies which are AAA rating, they are least to default.

So what happens when 1 person out of 25 cannot pay at the time of repayment, he may need some more time. That does not mean the other 24 are also defaulting.
ADVERTISEMENT

In the case of Franklin, two or three companies they had given the money defaulted. If everyone started withdrawing money in fear, or if every one starts asking money, where will fund house money from? Franklin doesn't have the money, since they have loaned it to 24 other people. To repay investors, Franklin need to sell the good securities also at losses. The fund house felt it not right for investors, and that is why they closed the scheme. So that people gets their money at the time of security maturities.

Like equity mutual funds, debt funds also invest in a diversified portfolio of 40-50 securities. It is just that you have to wisely choose the funds which are investing in papers of companies with good ratings. It is not that AA-Rated companies are bad. They generate good interest to your portfolio. Choose the fund wisely or take an expert advise on choosing the right fund for you.
A few good debt funds for three-year plus horizon for you: Axis Banking and PSU Fund, IDFC Banking and PSU Fund, and Axis Short Term Fund.

Download
The Economic Times Business News App
for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App
for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
READ MORE
ADVERTISEMENT

Top Mutual Funds

3 M(%)
6 M(%)
1 YR(%)
3 YRS(%)

READ MORE:

LOGIN & CLAIM

50 TIMESPOINTS

Save with Tax planning SIP's

More from our Partners

Loading next story
Text Size:AAA
Success
This article has been saved

*

+