–Nitin Girotra
It seems you are new to mutual funds. Don’t go by the past returns and rush to invest in mutual funds without understanding the basics. If you don’t understand much about mutual funds, seek the help of an advisor. Don’t take unnecessary risks and lose money.
Mutual funds do not offer assured returns. The returns from mutual funds depend on the prevailing conditions of the market. Also, all mutual funds have some elements of risk. Equity mutual funds don’t offer predictable returns every year like a bank deposit. Depending on the conditions in the stock market, equity mutual funds can offer very good or poor returns. However, over a long period, you can hope to get average returns of 12%. However, you can’t hope to get that kind of returns every year or in five years. One or two bad years in the market can upset your calculations. That is why we don’t ask investors to put money in equities unless they have an investment horizon of five to seven years. When you are investing in a safer avenue like bank deposits or debt mutual funds, you can only expect to get single-digit returns.
When you are investing for a short period of five years, you can’t take risks. This is irrespective of your stated risk profile. This is because when you are investing for a short period of time, your priority should be to preserve your capital. You can’t recoup losses when you have short-term goals. So don’t chase returns and invest in risky options like small cap schemes or sector schemes.
If you are investing for five years and willing to take some risk, you can invest in balanced advantage funds or dynamic asset allocation funds. These schemes decide their equity allocation based on the valuations in the market. They can be used to invest for five years. If you are keen to invest, you can check these recommended schemes: Best balanced advantage funds
